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How to cite this thesis
Surname, Initial(s). (2012) Title of the thesis or dissertation. PhD. (Chemistry)/ M.Sc. (Physics)/ M.A. (Philosophy)/M.Com. (Finance) etc. [Unpublished]: University of Johannesburg. Retrieved from: https://ujdigispace.uj.ac.za (Accessed: Date). Modes Of Market Entry Strategies: A South African Retail Company’s Perspective on Doing Business in Nigeria
By
Jonathan Katende
MINOR DISSERTATION
Submitted in partial fulfilment of the requirements for the degree
MAGISTER COMMERCII
In
BUSINESS MANAGEMENT
In the
FACULTY OF MANAGEMENT
At the
UNIVERSITY OF JOHANNESBURG
Supervisor: Mr. H. Coetzee
October 2015
Abstract
Many companies have rushed into Africa looking to capitalise on newly liberated prospective consumers. However, these companies have quickly realised that the local terrain is not as accommodating as that of other developing markets. South Africa has thus remained as the gateway to doing business in Africa and this has allowed South African companies to be in the best position to take advantage of the developing markets.
Nigeria became the biggest economy in Africa, leap-frogging South Africa in 2013 after it announced a rebasing of the country’s Gross Domestic Product. South Africa has the ability to regain its position as an African hegemon, considering its world class financial systems and infrastructure. This study will focus on South African retail companies’ internationalisation process in Nigeria, based on the recent shift of economic dominance on the African continent.
Successful companies in emerging markets are those that have modified their strategies to suit the local business environment without altering their values and principles. South African investors thus need to use this opportunity to conduct market research, risk assessments and analysis of competition as forms of market entry.
This research concerns itself with the manner in which South African retail companies enter new markets – specifically, the new modes of market entry in the Nigerian retail market. Once established, South African companies need to survive and grow their businesses in Nigeria. This research will determine the best practices for South African retail companies in Nigeria. The research results may serve as a guide for South African retail companies looking to conduct market entry into Nigeria.
A mixed method research approach was used, as it provided an in-depth understanding of the modes of entry for retail companies in Nigeria. This approach will aid the research in identifying a collection of techniques that fully obtain a descriptive and epistemological base for South African retail professionals and industry specialists in the Nigerian market.
i
Declaration
I, the undersigned, hereby declare that this minor dissertation titled, ‘Modes of Market Entry Strategies: A South African Retail Company’s Perspective on Doing Business in Nigeria’, is my own work and all the resources I have used have been indicated or acknowledged by means of completed references. It is submitted in fulfilment of the requirements for the degree of Masters of Commerce (M.Com) in Business Management at the University of Johannesburg. It has not been submitted before for any degree or examination at this or at any other university.
Jonathan Katende
October 2015
ii
Acknowledgments
Firstly, I would like to thank my maker lord and saviour, Jesus Christ, whose favour has blessed me throughout this long journey.
I would also like to give a special thanks to the following people:
My girlfriend, Makhotso. Thank you for your constant support and the love that you have given me. 2010 may seem like a couple of years ago, but it still stands as a life changing experience, one which I will be eternally grateful for. My parents, Guy and Josephine, to whom I owe all my wisdom and achievement to. Thank you for imparting the art of excellence and the lessons of humility throughout my life. I will continue to make you proud. My family and friends. Thank you for the constant support and guidance. I would not have come this far without all your support and I hope we can continue to influence and learn from each other. My supervisor, Mr. Herman Coetzee. Thank you for your patience and guidance throughout this journey. It was a pleasure working with you.
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List of Figures
Figure 1.1: Research methodology framework…………………………………………..7
Figure 2.1: Nigeria’s population forecast………………………………………………..22
Figure 2.2: Nigeria’s private consumption expenditure forecast……………………...22
Figure 3.1: Research methodology framework………………………………………....42
Figure 3.2: Forms of interviews………………………………………………………….43
Figure 3.3: Types of questionnaires……………………………………………………..45
Figure 3.4: Data analysis process………………………………………………………..46
Figure 4.1: Age of respondents…………………………………………………………..64
Figure 4.2: Gender of respondents……………………………………………………....64
Figure 4.3: Level of education of respondents……………………………………….....65
Figure 4.4: Current position in the company…………………………………………....66
Figure 4.5: Number of years in operation……………………………………………….67
Figure 5.1: Strategic framework for South African retail companies in Nigeria……118
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List of Tables
Table 2.1: Comparison of different entry modes………………………………………..29 Table 4.1: Cronbach's Alpha test…………………………………………………………62 Table 4.2: Frequency distribution SA retail best practices in Nigeria………………...63 Table 4.3: SPSS means and standard deviation……………………………………….68 Table 4.4: Economic-based barriers affecting SA retail companies………………….69 Table 4.5: Political-related barriers affecting SA retail companies……………………69 Table 4.6: Social-related barriers affecting SA retail companies……………………..70 Table 4.7: Industry-based barriers affecting SA retail companies……………………71 Table 4.8: Environmental-based barriers affecting SA retail companies…………….71 Table 4.9: Market entry modes used by SA retail companies………………………...72 Table 4.10: Market entry modes and the level of initial capital investment………….73 Table 4.11: Supporting data on modes of market entry……………………………….73 Table 4.12: Mode of market entry factors……………………………………………….74 Table 4.13: Trade regulations and standards impact on mode of market entry…….75 Table 4.14: Competitiveness factors…………………………………………………….76 Table 4.15: Local employees/partners role in the company’s competitiveness……..76 Table 4.16: Country specific advantages………………………………………………..77 Table 4.17: Level of education/training………………………………………………….78 Table 4.18: Operational challenges……………………………………………………...78 Table 4.19: Procurement procedure challenges………………………………………..79 Table 4.20: Inventory management challenges………………………………………...80 Table 4.21: Technology and innovation challenges……………………………………80 Table 4.22: Distribution processes challenges………………………………………….81 Table 4.23: Product challenges…………………………………………………………..82 Table 4.24: In-store challenges…………………………………………………………..82 Table 4.25: Best practiced SA retail companies………………………………………..83 Table 4.26: Best practice factors…………………………………………………………84 Table 5.1: The results of the propositions tests………………………………………...89 Table 5.2: Triangulation results…………………………………………………………108
v
List of Abbreviations
BSTM: Banco Standard Totta de Mozambique BRICS: Brazil, Russia, India and China and South Africa CET: Common External Tariff DBSA: The Development Bank of Southern Africa FDI: Foreign Direct Investment GDP: Gross Domestic Product GTI: Global Terrorism Index HR: Human Resources IDC: Industrial Development Corporation IPLC: The International Product Life Cycle ICBC: International Commercial Bank of China JV: Joint venture JSE: Johannesburg Stock Exchange LSM: Living Standards Measure LNG: Liquefied Natural Gas NAFDAC: National Agency for Food and Drug Administration and Control NITEL: Nigerian Telecommunications Limited MBA: Masters of Business Administration OECD: Organisation for Economic Co-operation and Development OLI: Own Localise and Internalise OSIC: One Stop Investment Centre PPP: Purchasing Power Parity ROI: Return on Investments SA: South Africa SAIRR: South African Institute of Race Relations SONCAP: Standards Organisation of Nigeria Conformity Assessment Programme USA: United State of America WOS: Wholly Owned Subsidiaries
vi
Table of Content
Abstract………………………………………………………………………………...... i
Declaration………….……………………………………………………………………….ii
Acknowledgments………………………………………………………………………...iii
List of Figures……………………………………………………………………………...iv
List of Tables………………………………………………………………………………..v
List of Abbreviations……………………………………………………………………...vi
Chapter 1: Background and Rationale
1.1 Introduction………………………………………………………………………….…...1
1.2 Research problem……………………………………………………………………….2
1.3 Research objectives………………………………………………………………….....3
1.4 Research methodology…………………………………………………………………5
1.4.1 Research design……………………………………………………………………....5
1.4.2 Research philosophy………………………………………………………………….5
1.4.3 Research approach…………………………………………………………………...6
1.4.4 Research methods…………………………………………………………...... 6
1.5 Data collection and analysis……………………………………………………...... 7
1.6 Validity and reliability……………………………………………………………………9
1.7 Limitations of the study………………………………………………………………....9
1.8 Research ethics………………………………………………………………………….9
1.9 Chapter outline…………………………………………………………………………10
1
Chapter 2: Literature Review
2.1 Introduction……………………………………………………………………………..12
2.2 International Business Theories……………………………………………………...13
2.2.1 Own Localise and Internalise (OLI) theory………………………………………..13
2.2.2 The Transaction Cost Theory……………………………………………………...13
2.2.3 International Product Life Cycle Theory (IPLC)…………………………………..14
2.2.4 Resource Based Theory……………………………………………………………14
2.2.5 Emerging markets…………………………………………………………………...15
2.3 South Africa’s role in BRICS: A gateway to Africa…………………………………15
2.3.1 South Africa’s investment in African markets…………………………………….19
2.4 Nigeria…………………………………………………………………………………..20
2.4.1 Overview of Nigeria………………………………………………………………….20
2.4.2 Competitive factors relating to the Nigerian retail sector………………………..21
2.4.3 Nigeria as an emerging market…………………………………………………….24
2.5 Barriers facing retail companies in Nigeria………………………………………….24
2.6 Modes of market entry………………………………………………………………...27
2.7 Modes of entry: Retailers in emerging markets…………………………………….30
2.7.1 Greenfield…………………………………………………………………………….30
2.7.2 Acquisition……………………………………………………………………………31
2.7.3 Joint Venture…………………………………………………………………………32
2.7.4 Franchising…………………………………………………………………………...33
Chapter 3: Research Methodology
3.1 Introduction……………………………………………………………………………..35
2
3.2. Research objectives…………………………………………………………………..35
3.2.1 Research philosophy………………………………………………………………..37
3.2.2 Research approach………………………………………………………………….38
3.2.3 Research design……………………………………………………………………..38
3.3 Methodological choices……………………………………………………………….39
3.3.1 Qualitative research…………………………………………………………………39
3.3.2 Quantitative research………………………………………………………………..40
3.4 Research methods…………………………………………………………………….41
3.5 Data collection………………………………………………………………………….42
3.5.1 Interview……………………………………………………………………………...43
3.5.2 Questionnaires……………………………………………………………………….44
3.6 Data analysis…………………………………………………………………………...46
3.7 Validity and reliability…………………… …………………………………………….47
3.8 Research limitations…………………………………………………………………...48
3.9 Objectivity……………………………………………………………………………….48
3.10 Ethics…………………………………………………………………………………..49
Chapter 4: Research Results
4.1 Introduction……………………………………………………………………………..52
4.2 Qualitative results from the interviews………………………………………………52
4.2.1. Respondents’ profile………………………………………………………………..53
4.2.1.1 Question 1: Country specific advantages……………………………………....54
4.2.1.2 Question 2: Barriers for South African retail companies ……………………..55
4.2.1.3 Question 3: Government policies and regulations……………………………..56
3
4.2.1.4 Question 4: Successful market entry strategies ……………………………....56
4.2.1.5 Question 5: Available supporting data ………………………………………....57
4.2.1.6 Question 6: Market entry strategies across Africa...... 58
4.2.1.7 Question 7: Tailoring product and service offering……………………………58
4.2.1.8 Question 8: Human resource policies …………………………………………..59
4.2.1.9 Question 9: Best practices ……………………………………………………….59
4.2.1.10 Question 10: Developing a strategy framework ……………………………...60
4.3 Quantitative results ……………………………………………………………………61
4.3.1 Reliability tests…………………………………………………………………….....61
4.3.2 Part A: Demographic information…………………………………………………..63
4.3.2.1 Age………………………………………………………………………………….63
4.3.2.2 Gender……………………………………………………………………………...64
4.3.2.3 Level of education………………………………………………………………...65
4.3.2.4 Current position…………………………………………………………………....65
4.3.2.5 Numbers of years in operation…………………………………………………...67
4.3.3 Market entry statistics……………………………………………………………….67
4.3.4 Part B: External barriers to business growth……………………………………..68
4.3.4.1 Economic-based barriers…………………………………………………………68
4.3.4.2 Political-related barriers…………………………………………………………..69
4.3.4.3 Social-related barriers…………………………………………………………….70
4.3.4.4 Industry-based barriers…………………………………………………………...70
4.3.4.5 Environmental-based barriers……………………………………..………...... 71
4.3.5 Part C: South African retail companies expansion………………. ……………..72
4
4.3.5.1 Market entry modes……………………………………………………………….72
4.3.5.2 Market entry modes and the level of initial capital investment……………….73
4.3.5.3 Supporting data on modes of market entry…………………………………….73
4.3.5.4 Mode of market entry factors…………………………………………………….74
4.3.5.5 Trade regulations and standards………………………………………………...74
4.3.6 Part D: Competitive factors ……………………………………………...... 75
4.3.6.1 Competitive factors………………………………………………………………..75
4.3.6.2 Local employees/partners..……………………………………………………....76
4.3.6.3 Country specific advantages……………………………………………………..77
4.3.6.4 Level of education/training…………………………………...…………………..77
4.3.7 Part E: Operational challenges …………………………………………………....78
4.3.7.1 Operational challenges……………………………………………………………78
4.3.7.2 Procurement procedure challenges…………………………………………….79
4.3.7.3 Inventory management challenges……………………………………………...79
4.3.7.4 Technology and innovation challenges………………………...... 80
4.3.7.5 Distribution processes challenges……………………………………………....81
4.3.7.6 Product challenges………………………………………………………………..81
4.3.7.7 In-store challenges………………………………………………………………..82
4.3.8 Part F: Best practices for entering Nigerian markets……………………………83
4.3.8.1 Best practiced South African retail companies…………………………………83
4.3.8.2 Best practice factors………………………………………………………………83
4.4 Conclusion……………………………………………………………………………...84
5
Chapter 5: Conclusions and Recommendations
5.1 Introduction……………………………………………………………………………..86
5.2 Overview of the aim and objectives………………………………………………….86
5.3 Limitations………………………………………………………………………………87
5.4 Research findings……………………………………………………………………..88
5.5 Findings of qualitative research………………………………………………………89
5.5.1 Country specific advantages of Nigeria …………………………………………..89
5.5.2 Barriers of entering Nigerian markets……………………………………………..91
5.5.3 Government policies and regulations impacting on market entry………………92
5.5.4 Successful South African market entry strategies…………..…………………..94
5.5.5 Supporting data on modes of market entry in Nigeria………………………...... 95
5.5.6 Market entry strategies comparison with Nigeria……………………….………..95
5.5.7 The extent of tailoring product and service offerings…………..……………....96
5.5.8 HR policies for South African retail companies entering Nigeria……………….97
5.5.9 Best practices for entering Nigerian markets…………………………………….98
5.5.10 Framework for entering the Nigerian retail markets……………………………99
5.6 Findings of quantitative research…………………………………………………...100
5.6.1 External barriers to business growth for South African retail companies in Nigeria…………………………………………………………………………………..….100
5.6.2 Market entry modes for South African retail companies in Nigeria…………...102
5.6.3 Competitive factors for South African retail companies in Nigeria……………103
5.6.4 Operational challenges for South African retail companies in Nigeria……….104
5.6.5 Best practices for South African retail companies in Nigeria………………….107
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5.7 Triangulation…………………………………………………………………………..108
5.8 Recommendations and implications for management…………………………...115
5.9 Strategic framework for South African retail companies entering the Nigerian business environment…………………………………………………………………....118
5.9.1 The use of a centralised structure………………………………………………..119
5.9.2 Wholly-Owned Subsidiary mode of market entry……………………………….119
5.9.3 Local partnership…………………………………………………………………...120
5.9.4 Aggressive expansion strategy…………………………………………………...120
5.9.5 Standardised range of products tailored to the local market…………………..121
5.9.6 Forecasting systems and reporting systems……………………………………121
5.9.7 Local internal programmes………………………………………………………..122
5.10 Further research…………………………………………………………………....122
5.11 Conclusion…………………………………………………………………………...123
Bibliography……………………………………………………………………………...126
Annexure A: University cover letter…………………………………………………138
Annexure B: Research questionnaire ………………………………………………139
Annexure C: Interview questions ……………………………………………………152
7
Chapter 1: Background and Rationale
1.1 Introduction
South African companies have had an extensive history of investing in Africa, particularly in sectors such as construction and mining. In fact, since 1994, investment has risen significantly across several sectors and disciplines (Games, 2004:12). According to the South African Institute of Race Relations (SAIRR) (2012), “The country’s Foreign Direct Investment (FDI) into the rest of Africa has increased at four times the rate of its global FDI, from ZAR 3.8 billion in 1994 to ZAR 115.7 billion in 2009”.
South Africa has been the leading non-oil investor in Africa since 1994. Despite the risk factors, South African companies have continued to invest in other African countries. Although only 8% of South Africa’s total foreign investment is in the rest of Africa, South African companies are now rapidly expanding into African emerging markets in order to build their own African footprint, which has resulted in a substantial number of Mergers and Acquisitions (Games, 2012:2).
There has been a fundamental shift in the manner in which South African companies have moved from traditional to emerging market economies (Financial Mail, 2005). South Africa has remained as the gateway to doing business in Africa, which has afforded South African companies the best position to take advantage of the developing markets. The BRICS (Brazil, Russia, India, China, and South Africa) trading alliance has enabled South Africa to take the lead as Africa’s prime business gateway. According to the Organisation for Economic Co-operation and Development (OECD), (2009:2), “BRICS have opened their economies and improved their connectedness to world trade networks.” Its geographic and logistical positioning has ensured accessibility for BRICS members, which has allowed South Africa to benefit from open Foreign Direct Investment.
This study will focus on South African retail companies internationalisation process in Nigeria based on the recent shift of economic dominance on the African continent, Nigeria became the biggest economy in Africa, leap-frogging South Africa in 2013 after it announced a rebasing of the country’s Gross Domestic Product (GDP) (Telegraph, 2014). The Nigerian retail industry has been identified as an untapped
1 investment opportunity for South African retail companies based on its investment potential and country specific advantages.
The retail industry in Nigeria has continued to expand with value sales increasing substantially in 2013 at a faster rate in comparison to real GDP. This growth has been fuelled by the increase of the Nigerian population, particularly within urban areas, the increase in disposable income amongst the growing middle class and the modernisation of the retail industry (Euro monitor international, 2014).
The Nigerian retail industry has grown rapidly and traditional retailing methods are slowly being replaced by modern methods. The research gap was identified by the dominant traditional retail channels of open markets where general goods are sold. These traditional retail channels have been flocked by counterfeit, non-quality and illegally imported goods, of which consumers have started to take notice. Thus, traditional retail chains have started to face the challenges of competitive global products, which have been of high demand, owing the increasing purchasing power of the Nigerian consumer.
Yet according to Euro Monitor International (2014), this particular industry has remained fragmented, with no major concerns for holding strong shares. However, the industry has already gained the attention of international retail chains such as Retail Supermarket Nigeria Limited’s Shoprite and Artee Industries Ltd.’s Spar. New entrants have started to emerge, owing to the lifting of the import ban on textiles and furniture. These chains include new entrants such as Mr Price, Woolworths, Hugo Boss and Pep (Euro Monitor International, 2014).
1.2 Research problem
Many companies have moved into Africa looking to capitalise on newly liberated prospective consumers. However, these companies have quickly realised that the local terrain is not as accommodating as that of other developing markets. However, successful companies in emerging markets are those that have modified their strategies to suit the local business environment without altering their values and principles (Mushuku, 2006:20).
2
South African retail company’s sustainability thus depends on the market entry strategies implemented in order expand beyond its borders. However, it is well understood that there are no clear guidelines for the use of successful/unsuccessful market entry strategies. Notwithstanding, the complexity and uncertainty around the suitability of market entry strategies in the retail industry remains a problem, which this research will aim to solve.
This research concerns itself with the manner in which South African retail companies enter new markets and the new modes of market entry in the Nigerian retail market. Once established, South African companies need to survive and grow their businesses in Nigeria. The research hypothesis will look at best practices in market entry strategies and how they provide South African retail companies an advantage when doing business in Nigeria. The research results may serve as a guide for South African retail companies looking to conduct market entry into Nigeria. Below is a list of five propositions which the study will aim to test as part of the research proposition test:
Propositions:
1. New modes of market entry strategies are used by South African companies when entering Nigerian retail markets. 2. There are many country specific advantages for South African retail companies doing business in Nigeria. 3. Various operational challenges impact on the success of South African retail companies doing business in Nigeria. 4. Partnerships with local firms are essential when entering Nigerian retail markets. 5. Marketing and sales strategies need to be adapted when doing business in Nigeria.
1.3 Research objectives
The aim of this study is to determine the most successful market entry strategies and stipulate best practices of how to enter the retail market in Nigeria. This study stems from the continuous interest of multinationals looking to operate in Africa, particularly
3 within the retail sector. Specifically, this research will seek to contribute to South African retail companies looking to do business in Nigeria. It will further identify frameworks that may highlight business friendly approaches for new entrants in the retail sector.
This research would be mutually beneficial for both Nigeria and South Africa counterparts looking to maximise business opportunities in emerging markets. This study will compare and contrast the data from the chosen companies in order to assess how different companies have penetrated the Nigerian market. This analysis will provide insight regarding similarities or differences across various industry sectors. The research could also serve as a guide to South African retail companies looking into market entry in Nigeria.
The following will be emphasised by looking at modes of market entry strategies when positioning South African companies in Nigeria:
To conduct an analysis of South African retail companies’ modes of market entry and strategies for doing business in Nigeria. To construct a strategic framework for how South African retail companies would succeed when entering this business environment. This framework would be assessed from the collection of data on the background and success of each business, strategy and modes of market entry used once in Nigeria. To identify the operational challenges involved when doing business in Nigeria. (This segment will be discussed during the data collection process.)
The secondary research objectives are:
To determine the competitive factors impacting the ways in which South African retail companies enter the Nigerian market. To identify new market entry strategies that can be followed by South African companies when entering Nigerian markets. To identify the barriers that prevents South African retail companies from entering Nigerian markets.
4
1.4 Research methodology
This study will follow a mixed methods approach, which will help the research to gain an in-depth understanding of the modes of entry for retail companies in Nigeria. Using this method will aid the research in identifying a collection of techniques that obtain a fully descriptive and epistemological base from the perspective of South African retail professionals and industry specialists in the Nigerian market. Furthermore, this approach will enable the reader to gain a rich understanding of the processes and context of the research. This approach will be necessary, considering that the research methodology will allow the author to collect broad data from South African retail companies that have established themselves in Nigeria.
1.4.1 Research design
The research design can be defined as “an outline for conducting a study and controlling factors that can affect the validity of the research results” (Burns and Grove, 2003:195). In consideration of the aim and objectives of this study, a mixed method research approach will be used. “This approach uses both qualitative and quantitative research methods and combines the attained data in certain ways to benefit from the strengths of both of them” (Burns and Grove, 2003:195).
The reason behind the chosen research method is that it allows for the various kinds of data to be collected through the use of different methods and approaches in order to achieve research objectives. According to Denzin and Lincoln (1992:88), “human behaviour, unlike that of physical objects, cannot be understood without reference to the meanings and purposes attached by human actors to their activities”. Thus a research method is needed that will allow analysis of the strategy implemented and an understanding of the positioning plan the company executed. This section will look at how this research will be influenced based on the design presented.
1.4.2 Research philosophy
This research will follow a positivism approach, which, according to Coolican (2004:59), is an approach based on the knowledge gained from a set of verifiable experiences rather than introspection or intuition. Positivism will be concerned with facts rather than impressions, thus this approach will make this research credible
5 through an observable social reality. Another component that will aid the research is the assumption that the researcher will be independent and unaffected by the subject of the research, thus making the researcher non-biased and objective (Remenyi, Williams, Money, and Swartz, 1998:43)
In addition, this research will look to observe how the research will assess the study behaviour under controlled conditions in order to establish the effects of single variables. This step will allow for an objective approach, where different observers would be able to agree on what has been observed (Johnson and Christensen, 2008:50). This approach will support the research question and objectives discussed and it will aid testing the hypotheses of the research design.
1.4.3 Research approach
This study will adopt a deductive approach that will also be exploratory in nature. This deductive approach will seek to develop a theory or hypotheses whereby a research strategy will aim to test the hypotheses. According to Saunders, Lewis, and Thornhill (2012:500), a deductive approach will explain the casual relationships between variables. As this research will establish the reasons for best market entry practices for South African retail companies in Nigeria, patterns will be studied in order to assess whether there is a relationship between the absences of the variables or not. Hypotheses will then be formed in order to test the variables against the hypotheses.
New insights will be collected from senior executives and South African retail employees. An exploratory study is a valuable means of finding out ‘what is happening; to seek new insights; to ask questions and to assess phenomena in a new light’ (Robson, 2002:59). This research will be based on the experience of these individuals in the modes market entry in Nigeria.
1.4.4 Research methods
According to Myers (2009:60), a research method is a strategy of enquiry, which moves from the underlying assumptions to research design, and data collection. This research will be empirical in nature and it will blend primary and secondary sources. It will contrast the findings based on the interviews and questionnaires. The research
6 will seek to understand the constraints faced by the South African retail operators in Nigeria with regards to its market entry.
The research method used will be a cross-sectional study of the current approaches South African companies have made when conducting market entry in Nigeria. According to Saunders et al. (2012:153), cross-sectional studies seek to describe the incidences of a phenomenon or explain how factors are related in different companies. From a time horizon point of view, this research will use a qualitative method that, which will provide a snapshot perspective across a short period of time. Figure 1.1 bellow will illustrate the research methodology framework used in this research.
Figure 1.1: Research methodology framework
Interviews and Questionnaires
Senior SA Retail Executives Employees
Data Validation
Data and Content Analysis
Figure 1.1 shows the steps in which the data collection process will occur; semi- structured interviews and questionnaires will be conducted with employees across South African retail companies.
1.5 Data collection and analysis
An exploratory study will be conducted with the selected senior executives and retail employees across South African retail companies. The interviews will be non- standardised one to one interviews and will include in depth questioning face to face.
7
In an exploratory study, in depth interviews can be very helpful to ‘find out what is happening and to seek new insights’ (Robson, 2002:59). Furthermore, a semi structured interview style will be adopted in order to address key themes, which will serve to be more exploratory in nature instead of being restricted to specific structured questions. In an explanatory study, semi-structured interviews may be used in order to understand the relationships between variables, such as those revealed from a descriptive study (Saunders et al., 2012:318).
Questionnaires will also be used as part of the quantitative part of this research. The questionnaires used will be Internet- and Intranet-mediated questionnaires targeted at employees from South African retail companies. Both these collection methods will be used in order to achieve an in depth understanding about the modes of market entry for South African retail companies in Nigeria.
The interviews and questionnaires will be analysed by means of content and descriptive analysis, given that they address the research themes. The research propositions will form part of an interview guide, wherein respondents will be asked the same questions. This study will involve non-probability sampling, which is more of a purposive sampling. It can be defined as a technique where individuals or groups are selected based on the information provided.
The senior executives will be selected based on their experience and insight they can provide on the subject matter. The selected senior executives have experience in the retail industry and have worked for multinational companies at a strategic level. These professionals have over 10 years working experience. The quantitative part of this research will use questionnaires to gather data from South African retail employees. As part of the descriptive study, the questionnaire will aim to understand organisational practices. This method will enable the author to identify and describe the variability in different phenomena (Saunders et al., 2012:417). However, this study will also follow exploratory or analytical research, which will examine and explain the relationship between variables and the cause and and-effect relationship (Saunders et al., 2012:417).
8
1.6 Validity and reliability
In order for the research to be credible, valid and reliable, a careful due diligence will be conducted on the respondents’ past interview experience and academic credibility. The qualitative part of this study will ensure that a cordial and trustworthiness rapport between the respondents is built prior to the interview in order to gain trust and create a conducive environment to stimulate academic engagement.
The quantitative part of this study will ensure its reliability through the most popular reliability tests used today, the Cronbach's alpha test. The Cronbach's alpha test will determine the internal consistency or average correlation of items in the questionnaire. In addition to the above, in order to ensure the overall reliability and a validity of the research, the use of a verification method will be used. The verification method used for this type of study will be the triangulation method.
1.7 Limitations of the study
Limited available resources and not being able to sample an entire population are the major limitations in this study. Also, securing data from South African companies in Nigeria may be subject to confidentiality of the content strategies. The study will focus on Nigeria specifically and, although new entry strategies may be similar to other African markets, the focus will thus be limited to Nigeria’s market entry strategies. As the focus on new entry strategies in the Nigerian retail industry may be impractical in its comparison to other African markets, considering the various consumer demands, political stability and diverse populations.
1.8 Research ethics
The study will be impartially conducted and undertaken in an objective manner. The purpose of this study will be clearly communicated to the participants and a clear disclaimer will explain that no participant will be obliged to take part in the study. The respondent’s right to privacy and confidentiality will also be adhered to. All findings will be disclosed regardless of conflict and discernment.
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1.9 Chapter outline
Chapter 1: Background and Rationale
The aim of this chapter is to introduce the research, providing background on the research topic, the purpose and motivation for the study. The rational and motivation will be provided based on the need for an exploratory study on the modes of market entry and strategies for South African retail companies in Nigeria. This chapter will include the following: a research problem, research hypothesis and the research objectives as well as an outline of the research design and methodology. Furthermore, this chapter will discuss the relevance of the findings, the research gap and the contribution that the research will make to the field.
Chapter 2: Literature Review
This chapter will be made up of a detailed literature review composing of the modes of market entries and strategies according international trends and best practices. The purpose of this chapter is to contextualise the study within the theory on market entry strategies. This chapter will elaborate on the topic and title – more specifically, Nigeria as an emerging market. It will discuss modes of market entry theories and strategies based on books, journals, reports and articles that relates to the research topic. This chapter will aim to validate the research based on the literature presented.
Chapter 3: Research Methodology
This chapter will focus on describing and defining the research design methods, research philosophy and strategies that will be used to obtain information from the respondents. A detailed methodological framework will be set out, along with an explanation of each step in the research process with regards to the design, collection and analysis. A time frame and budget pertaining to the research will also be discussed in order to highlight the feasibility of the research.
Chapter 4: Research Results
This chapter will focus on analysing and reporting the collected information and identifying patterns and/or themes. This stage will allow for the ability to report on the research findings. Chapter 4 will focus on the data analysis of the research results
10 achieved from the interviews and questionnaires with South African retail employees and managers based on the research objectives as well as the main research question and sub-questions of the study. This part of the research will present the qualitative results from the interviews and the quantitative results from the questionnaires. Conclusions and recommendations will be derived from the results, and then this chapter will draw on the report which will be discussed in its entirety in the following chapter.
Chapter 5: Conclusions and Recommendations
This chapter will cover the final conclusions based on the findings, the proposed market entry plans and the recommendations presented. This chapter will integrate the findings of chapters 3, 4 and 5 to determine the modes of market entries and strategies for South African retail companies doing business in Nigeria. The main research question and sub-questions will also be answered. A discussion on the results will provide an analysis for the modes of market entry and strategies for South African retail companies in Nigeria. Furthermore, references to market entry theories and strategies will be discussed in order to support the main findings of the research. This process will allow the research to compare the findings of the research with previous theories and seek to construct a strategic framework for South African retail companies in Nigeria. The latter is especially important, considering the exploratory nature of this research. Furthermore, this chapter will contain the conclusion and the prospects for future studies.
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Chapter 2: Literature Review
2.1 Introduction
In addressing the research objectives of the study, this chapter will thus focus on the literature review, which will cover existing bodies of knowledge that have been identified as focal points of the research. These include the modes of market entries, expansion of retailing from an African perspective, operational challenges involved when doing business in Nigeria and strategies according to international trends and best practices.
The purpose of this chapter is to contextualise the study within the theory on market entry strategies. Consequently, it will critically evaluate the literature on new market entry strategies in emerging markets, particularly the competitive factors relating to Nigeria’s retail industry and the barriers that prevent South African retail companies from entering Nigerian markets. Having considered the above, this chapter will identify the best practices of South African companies expanding business into Nigeria, followed by an identification of a strategic framework on how South African retail companies can succeed in entering Nigerian markets. The following section will discuss international business theories as theoretical background in the study of modes of market entry.
It must be noted that the African continent has given rise to a new era of economic activity and has increased the level of trade and business across the continent. Over the past years, South African companies have gained experience in their expansion plans across emerging African markets, which have contributed to the study of modes of market entry and strategies.
According to Anderson (1997:1-26), foreign market entry strategies are the key strategic decisions concerning the company’s internationalisation process. Entry modes have thus been identified as institutional arrangements for organising and conducting international business transactions. Market entry strategies influence foreign direct investment operations across the globe, making the modes of entry in a foreign market a significant contributor to economic growth and profitability.
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2.2 International Business Theories
Several international business theories have surfaced as part of market entry process. Below are the leading theories most relevant and relatable to the study that will be undertaken.
2.2.1 Own Localise and Internalise (OLI) theory
According to Dunning (1988:120), a company’s outward activities should be based on three factors: ownership (O), location (L) and internalisation (I) advantage. The O- advantage refers to companies that have economic advantage through ownership, which serves as a competitive edge. The L-advantage refers to the geographic position companies’ use as a leveraging point against their competitors, which could include infrastructure, transportation, communication cost, market demand, price of the production factors and investment environment in the place of production and culture distance (Terpstra and Yu, 1988:33-46). Finally, the I-advantage refers to companies that keep their advantage inside the company in order to avoid the adverse effect of an imperfect market. OLI theory remains as the most popular theory explaining the international expansion of companies.
In terms of retail internalisation, especially in today’s complex and dynamic international business environment, the OLI framework raises some concerns. According to Narula (2010:36), there are several complexities when trying to understand the mode of entry and its application, possibly because the OLI framework is structured along the lines of FDI as a driver of production activities of multi-national corporations (Dunning, 2000:164; Dunning, 2001:176). Although the application can be contextual, the OLI framework has its limitations with regards to modes of entry for the retail industry. Furthermore, the OLI framework does not make itself flexible for contractual entry mode options such as Franchising and Joint Ventures, which may be needed in an unstable market such as Africa.
2.2.2 The Transaction Cost Theory
The transaction cost theory explains the entry modes of companies based on the trade-offs between control (during market integration) and the cost of resource committed. Classical economics has suggested that due to the perfect competition in
13 markets, price mechanisms may form part of how companies allocate their resources. These costs include bargaining cost, default cost, searching cost, supervision cost and contract costs.
Transaction cost theories can affect the mode of market entry, based on the objectives of the entrant company. As a result, mode choices may be influenced by company specific asset specificity, as companies with greater technological needs may incur higher costs (Coase, 1937:46, Hennart, 1991:59). This theory may be difficult to undertake given the complexity of the nature of the modes of market entry and the international business environment (Anderson and Gatignon, 1986:1-26).
Transaction cost analysis can also be related to the international product life cycle theory or resource-based theory. This similarity suggests that the resources and time at the disposal of the investing company can be influential in the company’s decision to engage in the prolonged bargaining and negotiation process (Dakora and Bytheway, 2014:4). This theory does, however, look at the capabilities of retail companies and how they manage the processes of internationalisation with all its complexities through discussion.
2.2.3 International Product Life Cycle Theory (IPLC)
The International Product Life Cycle (IPLC) theory developed by Raymond Vernon (1966:190-207) emphasises the role of “innovation, scale, ignorance, and uncertainty” and discards the assumption that knowledge is a free good. The IPLC theory introduces four stages: (1) introduction stage, (2) growth stage, (3) maturity stage and (4) decline stage (Yoo, 2010:66). It goes on to state that at some point competitors will be able to copy the technology of companies. However, if they are unable to copy, it may be advantageous for the company. The IPLC theory in essence will give companies the opportunity to evaluate when companies need to produce products at each phase of the life cycles.
2.2.4 Resource Based Theory
The Resource Based Theory suggests that a company’s organisational capability perspective is rooted in the resource based theory. According to Madhok (1997:51), a company’s capability is perceived as a company’s static and transferable
14 resources that are transformed into capabilities through interactive and dynamic company specifics, where individual technologies, skill and organisation are synergised. Peteraf (1993:179-191) further suggests that the Resource Based Theory has a crucial implication on corporate strategy, where the company can determine the trajectory of the company in order to help managers differentiate between resources that might support the company’s competitive advantage from other, less valuable resources.
2.2.5 Emerging markets
Emerging markets can be recognised as countries that are in a transitional phase between developing and developed status, thus showing characteristics of a developed sectors in a developing environment. According to Aghara, Anyanwu, Nwaizugbo, Okpala, and Oparah (2011:82), emerging markets are societies in which there is an increase in Gross Domestic Product (GDP). GDP refers to the total market value of all goods and services that are produced within a country per year.
Emerging markets can also be described as “low income, rapid growth countries using economic liberalisation as their primary engine of growth” “(Hoskisson, Eden, Lau, and Wright, 2000:249). This definition suggests that emerging markets hold a considerable amount of disposable income and have a strong purchasing power within the society. Emerging markets have been regarded as lucrative investment options for multinational companies looking to capitalise on the growth potential.
2.3 South Africa’s role in BRICS: A gateway to Africa
According to Werksmans (2012), one of the most noteworthy economic and political engagements over the past years has been South Africa’s involvement with Brazil, Russia, India and China in a cooperative alliance, now known as BRICS. The combined market involvement of the BRICS countries has a scale that may attract partnerships with South Africa’s economy and may be a lucrative partnership for South Africa’s expansion growth into Africa. The BRICS countries have a combined population of 2.85 billion – around 43% of the world’s total, with a combined labour force of 1.5 billion and an average age across the four continents of 29 (Werksmans, 2012). South Africa, as Africa’s only member of the BRICS alliance, will be the gateway into Africa for the other member countries.
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Strategically, South Africa could be seen as more than an entry point for other BRICS nations to move goods, commodities and resources into the rest of Africa. South Africa’s positioning in BRICS could also be leveraged from an investment partnership point of view, particularly as a partner in investment opportunities on the continent. South Africa could provide other BRICS nations with political and economic advantage as well as continental experience, which could be attractive for foreign investors coming into Africa (Werksmans, 2012). According to the South African government, membership in BRICS will provide economic benefits such as increase trade, investment opportunities and political benefits that could increase South Africa’s voice on the international platform (Besada, Toc, and Winters, 2013:1- 15)”.
With regards to Africa’s development, the BRICS agreement has benefited the expansion of sub-Saharan African markets as well as infrastructural development and trilateral cooperation on the continent (China US Focus, 2011). According to South Africa’s Trade and Industry minister, Rob Davies, the BRICS nations would stand to gain from direct trade in their own currencies. This advantage would be seen to protect BRICS members form global currency volatility, such as the US dollar (South Africa.info, 2011). South Africa is positioned to benefit from BRICS in the form of trade and investment on the continent, which has been supported by the increase in Joint Ventures, Mergers and Acquisitions with other BRICS nations (Besada et al., 2013:1-15).
In recent years, several Joint Ventures, Greenfields and acquisitions have developed. Below is a list of companies that have used South African companies as a gateway into Africa’s emerging markets.
Standard Bank
Standard Bank, South Africa’s largest bank, sold a 20% stake in the company to the International Commercial Bank of China (ICBC) in 2008 (Battersby and Lu, 2011:4). A joint statement indicated that the ICBC viewed South Africa as lucrative investment in Africa as it sought its alliance with Standard Bank in order to have access to opportunities across the continent. For Standard Bank, however, the deal meant the it would have access to a larger and the fastest growing economy in the world.
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Furthermore, the alliance would better facilitate finance trade flows between Asia and Africa (South Africa.info, 2007). Up to this point, market entry in the banking sector in Africa has been complex and sluggish, owing to the administrative lags in receiving banking licencing and the high cost of acquiring existing banks.
Standard Bank expanded into Africa through acquiring a portfolio of banks, which include 100% of ANZ Grinlays, an 80% stake in Uganda commercial bank, 100% of the Tanzanian operations of Meridien BIAO Bank Tanzania Limited, a 55.29% stake from Banco Totta Acores in Banco Standard Totta de Mozambique SARL (BSTM) for US$21, 5 million (about R148 million) and the acquisition of the Lesotho operations of Barclays Bank PLC Lesotho, to name a few (Standard Bank, 2015). According to Sutherland (2010:20), acquisition was regarded as the quickest strategy for establishing a presence and expediting growth. Standard Bank therefore focused on scaling up its operations in the markets where it had a presence rather than expanding its footprint in countries where it did not conduct business.
MTN
The MTN group was established in 1994 and has become one of the leading emerging market mobile operators on the continent. The company has invested significantly in advanced communications networks, which has connected approximately 200 million people in 22 countries across Africa and the Middle East (MTN, 2014). The company’s capital expenditure has exceeded R130 billion in its operating countries, namely: Cameroon, Ivory Coast, Ghana, Nigeria, Republic of Congo (Congo Brazzaville), Rwanda, Zambia and South Africa Sudan. The MTN group has its head office in Johannesburg, South Africa, where it is also listed on the Johannesburg stock exchange. At the end of the financial year of 2013, the MTN group had a turnover/revenue of R136.495 billion, and has been described as a significant player on the African continent, particularly in Nigeria, as well as the Middle-East.
As part of MTN’s expansion strategy, it provided a unique product, thus entrenching its entry in emerging markets: MTN won over the majority of its clientele through its 3G network, which was uncommon for emerging markets; for example, as of 2009, 3G networks were not common in India (Ezeani, 2012). MTN was able to offer its
17 technology across the countries in which it operated, thus setting itself apart from its competitors, making the 3G offering a justifiable differentiation strategy. Furthermore, MTN’s meteoric rise was attributed to a saturation of its domestic market – so much so, that expansion was inevitable. As of 2009 South Africa’s mobile penetration was already at 44.5 million (Cellular-news, 2009).
As of 1997-1999, MTN was able to acquire several licences across the continent, ultimately entrenching MTN’s market entry into those countries. The markets include Uganda, Rwanda, Nigeria, Namibia, Kenya, Ethiopia, Cameroon and Swaziland. The MTN group expanded into African markets based on the availability of Greenfield licenses, which were encouraged by newly liberalised governmental policies that backed foreign direct investments. MTN’s expansion was characterised by an opportunistic attempt to benefit from the deregulation in telecommunication sectors and the potential of high growth and low penetration rates in African markets. The liberalisation of the mobile phone sector in Nigeria, for example, opened up avenues for competition with the monopoly state corporation Nigerian Telecommunications Limited (NITEL) for MTN and Econet Wireless in order to compete for market share in the country (Ezeani, 2012). MTN took this opportunity and succeeded, based on its first mover advantage in Nigeria. Thereafter, more countries opened up their economies for privatisation and even more companies followed the same practice as MTN in the process; the success of the operations in MTN saw the prompt entry of other companies to compete for market share (Ezeani, 2012).
MTN’s rise in Nigeria and Africa has been nothing short of a success story that was initiated by a compelling differentiation strategy and compounded by a prompt first mover advantage execution. MTN’s expansion in Africa has been attributed to its entrepreneurial proclivity in a market which its competitors were apprehensive about. MTN’s market leadership in Africa and Nigeria has seen the company grow from strength to strength, and it has become an important partner in the African telecom sector. This success prompted Nigerian president, Goodluck Jonathan, visit to South Africa to meet with MTN group president and CEO Sifiso Dabengwa and, although MTN did not disclose the meeting’s agenda, speculation suggests that MTN’s monopoly was discussed (BusinessTech, 2013).
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2.3.1 South Africa’s investment in African markets
For years South Africa was regarded as a top FDI destination in Africa, in spite of its latest slump in its economic ranking, which was attributed to competitive nature of African oil-producing countries. South Africa has nonetheless benefited from its broad-based and multi-sectoral industries and it has invested across various industries, reflecting its diversified economy. Since 1994, South Africa has been one of the largest non-oil investors in Africa (Games, 2012:2). South Africa has leveraged its positioning as a financial hub and has been renowned for its capitalised banks and superior financial infrastructure in Africa. This position has thus attracted investors who have looked to invest in Africa through South Africa’s financial sector. Indeed, the South African financial sector has benefited from its status as a safe option for investors looking to access loans, trade finance and products for African business.
Furthermore, the Johannesburg Stock Exchange (JSE), serving as the largest stock exchange on the continent, has invested considerably through financial transactions, making it Africa’s equity hub. More than R 100 billion funds were under management on the JSE, with a majority of its funds directed at assets elsewhere in Africa. The Reserve Bank of South Africa has further relaxed its exchange control for both private equity deals and general investment into the continent. South Africa has been able to invest in Africa through its two principle agencies, The Development Bank of Southern Africa (DBSA) and Industrial Development Corporation (IDC). These agencies have aided in financing cross-border projects and infrastructure development and have ultimately awarded opportunities to South African based companies to grow their footprint on the continent.
Partnerships have allowed South Africa to leverage its position as a BRICS member, thus enabling these agencies to explore other partnerships and attract mutual funding. Furthermore, this type of partnership has given rise to other mechanisms, such as the BRICS Banking Mechanism (DBSA, 2011), in which the DBSA is a partner. This move has positioned the DBSA as part of a liaison group that is examining ways to develop South–South trade (Bua News, 2011).
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As for the private sector, South African companies discovered that doing business domestically after the fall of apartheid meant that local markets would become more competitive, owing to the entry of global participants (Deliotte, 2014:4). South African companies therefore hastily expanded their African networks, building businesses and entrenching their own African footprint, resulting in several Mergers and Acquisitions on the continent.
2.4 Nigeria
As part of South Africa’s investment in Africa, the following section will look at Nigeria as a destination for South African companies looking to enter the retail market. This section will include an overview of the Nigerian economy, the competitive factors relating to Nigeria’s retail sector, Nigeria as an emerging market and barriers facing retail companies in Nigeria.
2.4.1 Overview of Nigeria
The Federal Republic of Nigeria is located in the gulf of Guinea in West Africa and is made up of 36 states. The country has a population of 158 million people, and total land area of 356,669 square miles (923,773 square kilometres) which accounts for 47% of West Africa’s population (World Bank, 2013). Nigeria secured independence in 1960 from Britain, and the country’s capital is located at Abuja. Nigeria has six major business cities, comprising of Aba, Abuja, Lagos, Onitsha, Kano and Kaduna (Ogbonna, 2010:43). It has several natural resources in its portfolio; most noteworthy is Nigerian crude oil. Nigeria, considered a petro-state in Africa, is the largest oil producer in Africa. The country also holds the largest natural gas reserves on the continent and was the world's fourth largest exporter of Liquefied Natural Gas (LNG) in 2012 (EIA, 2013:4).
In recent years, however, Nigeria has experienced an on-going security crisis because of the terrorist attacks led by insurgent groups. According to the latest Global Terrorism Index (GTI), Nigeria currently ranks the seventh most terrorised country in the world (Osundefender, 2013). Nigeria’s terrorism profile however has degenerated due to the rising incidences led by the Boko Haram insurgents in many parts of Northern Nigeria. Nigeria’s security crisis has had a negative impact on the country, owing to the increased level of insecurity and fatalities. However, investor
20 confidence has continued to persist, despite these fears, and it based on the thriving oil generated economy. The following sections will further illustrate why Nigeria has shown potential to be an emerging market.
2.4.2 Competitive factors relating to the Nigerian retail sector
The Nigerian retail industry has grown rapidly and traditional retailing methods are slowly been replaced by modern methods. According to Mckinsey and Company (2013), it was estimated that between 2008 and 2020, there are growth opportunities in the Nigerian food and consumer goods industries in the regions of $40 billion, making it the highest grossing figure for any African nation. Despite the incongruous fact that Nigeria’s GDP per capita is $1,443, the retail sector has a significant opportunity for growth in the market, considering that Nigerians spend more than 70% of total earnings on food, which leaves little room for discretionary spending and saving (Mckinsey and Company, 2013). The research gap identified has been recognised by the dominant traditional local retail channels of flea-markets where general goods are sold. These traditional retail channels have been overrun with counterfeit, non-quality and illegally imported goods, of which consumers have begun to take notice. Thus, traditional retail chains have started to face the challenges of competitive global products that have been of high demand due the increase purchasing power of the newly formed Nigerian consumer.
The Nigerian retail market has made some remarkable changes in the last few years. According to Research Weekly (2014), in 14 years, total retail sales rose to $129 billion (838 %), from $15 billion in 1999 to $145 billion in 2013, and may increase to $250 billion by 2018. There was a similar growth pattern in the food and non-food components of the total retail sales. Food retail sales rose to $88 billion from $11 billion in 1999 to $99 billion in 2013 and non-food retail sales increased by $41 billion from $4 billion in 1999 to $45 billion in 2013 (Research weekly, 2014). Food and non-food retail sales have been so impressive that it has been forecasted that sales would reach $161 billion, as non-food retail sales climb to $89 billion in 2018 (Research weekly, 2014).
Nigeria’s total private consumption expenditure rose from $316 billion, up from $43 billion in 1999, and is projected to rise to $536 billion by 2018. Nigeria has shown impressive forecast for the retail space if population is factored into the metric;
21 compared to 1999 record, private consumption per head increased from $352 in 1999 to $1,810 in 2013, and is expected to rise to $2,700 by 2018 (Research weekly, 2014). Below are figures 2.1 and figure 2.2, which illustrate Nigeria’s population forecast and private consumption expenditure forecast:
Figure 2.1: Nigeria’s population forecast
Source: Research weekly (2014)
Figure: 2.2: Nigeria’s private consumption expenditure forecast
Source: Research weekly (2014)
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According to Research weekly (2014), Nigeria’s top two consumption expenditure items are food beverage and tobacco and housing and household fuels. Food and beverages and tobacco expenditure in 2013 was about 66% of the aggregate consumption expenditure, and housing and household fuels recorded 18% market share in 2013. Cumulatively, both consumption items controlled 84% market share in 2013 (Research weekly, 2014). These forecasted figures show a positive growth pattern within retail food and highlights the need to develop the retail industry based on the emerging retail space trends and projections.
The new economic status has been one of the reasons as to why Nigeria has seemed promising within the retail space. Nigeria overtook South Africa as the largest economy after a rebase of the GDP; the move has redefined the importance of the retail sector. According to Research Weekly, although the pre-rebasing era had top three sectors that contributed about 75% to the nominal GDP, the top three sectors now contribute 55% to the nominal GDP after the change in the base year. Furthermore, the top five sectors used to contribute about 66 % to nominal GDP, whereas now the top 14 activity sectors (showing an individual contribution of N1 trillion in size) contribute about 90% to the nominal GDP (Research weekly, 2014). These figures have shown activity in sectors that have attracted investors’ attention. This suggests that Nigeria’s updated GDP status may attract high returns on investments, thus creating huge market potential for the retail sector, based on the improved investment profile of the country.
According to Euro Monitor International (2014), this particular industry has remained fragmented, with no major concerns for holding well performing shares. However, Nigerian households with incomes of more than $5,000 a year will increase from 20% of the population to 27% of the population by 2020. This increase will make them attractive to formal retail chains (McKinsey and Company, 2013). In fact, they have already gained the attention of international retail chains such as Retail Supermarket Nigeria Limited’s Shoprite and Artee Industries Ltd’s Spar. New entrants have started to emerge due to the lifting of the import ban on textiles and furniture. Including Mr Price, Woolworths, Hugo Boss and Pep (Euro Monitor International, 2014).
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2.4.3 Nigeria as an emerging market
Nigerian GDP figures suggest that in the first halves of 2011, 2012 and 2013, retail sectors contributed to 15.58%, 17.05% and 18.44% respectively to Nigeria’s GDP. This figures also closely aligned with growth rates, which grew by 19.89%, 14.72%, and 14.51% respectively within the same period (Business Day, 2014). Nigeria’s economic growth on the continent has contributed to its emerging market status on the global market. Global growth has been driven by emerging markets and Nigeria has risen as the African leader in this regard.
According to Ernst and Young (2012), Nigeria has attracted the most FDI in Africa, amounting to $8.9 billion. Furthermore, after the rebasing of the GDP, Nigeria grew to approximately $502 billion. This growth was driven by fiscal countercyclical policies in 2011-2013, which significantly reduced its budget deficit and monetary policies that recapitalised and regulated its banking sector (CIA fact book, 2014). Furthermore, the Nigerian economy has continued to grow at an impressive average of 7% per annum over the last five years (Deliotte, 2014).
2.5 Barriers facing retail companies in Nigeria
In order to execute market entry strategies, companies would have to be cognisant of the barriers that prevent market entry into a desired market. The following section will discuss the barriers that prevent South African retail companies from entering Nigerian markets.
South African companies such as Woolworths have faced several challenges in Nigeria. The company was faced with closing three of its shops after less than two years. The Woolworths cited that the reasons for its challenges were the exorbitant price of rent and a range of complexities across its supply chain. According to experts, the company had made too little effort to promote its brand or adapt to consumer demands in Nigeria. For example, the company relied on changing seasons to boost its turnover for clothing, forgetting to consider that Nigeria’s clothing market had no such natural churn, based on the country’s hot climate all year round (The Economist, 2014). This section will thus focus on the retail sector and will therefore highlight the industry barriers that affect retailers in Nigeria. The
24 barriers will include security, retail space, supply chain infrastructure and power supply:
Physical security for expats and locals has continued to be a cause for concern for multinational companies, as has industrial action, which could affect business operation (Corporate Nigerian, 2012). The threat of militant groups such as Boko Haram has contributed to companies having to intensify the level of security needed to run daily operations. This type of challenge affects the ways in which retail companies do business, suggesting that further expenses from companies are likely to be incurred in reinforcing security capabilities to protect the staff and the company’s investments.
One of the biggest barriers faced by retail companies has been the lack of custom- built spaces, specifically malls and shopping centres in Nigeria. Lagos is home to 20 million people and boasts only two world-class shopping malls; the Palms, which opened in 2005, and the Ikeja Mall, in 2011 (The Economist, 2014). Industry experts believe these figures are below the level of malls needed to accommodate the ambitions of multinationals (Financial times, 2013).
Another obstacle for retail companies in Nigeria is the absence of viable and low- cost distribution networks. Although there are similarities in rationale regarding expansion into Nigeria, expansion strategies may vary, largely owing to circumstances companies encounter when entering a market. Amongst some of the barriers in expansion, setting-up operations in new markets remains one of the biggest hurdles. The lack of street numbering, road infrastructure and an ineffective postal system has created several barriers to the ways companies can have their merchandise delivered across Nigeria (Financial times, 2013). These barriers can severely affect the supply chain system of a company and, ultimately, its profit margins.
Particularly, the sourcing of goods has slowed down inventory supply for retail businesses, and has meant companies have had to increase their levels of investments to continue business. According Whitey Basson, Chief Executive of Shoprite, Shoprite could double its African business if it could “get rid of all the red tape and all problems of just getting stores and merchandise out there”. He further
25 adds that it is “really still very, very tough and there is very little help from anybody, be they manufacturers or government from both sides to make the African continent a global trading area like you have in Europe and the Americas” (Dakora, Bytheway and Slabbert, 2010:751)
The railway line connecting Lagos on the coast to the northern commercial hub has come with its own challenges. According to the Financial Times (2013), Nigeria’s Comatose Railway Line in Kano, which is a 1,130km journey, still takes more than a day to reach its destination. This is equivalent to three times the length of a similar trip in China. The lack of rail infrastructure can be a major challenge for retail companies seeking to transport their imported merchandises to their stores, specifically regarding the food and consumer goods.
Nigeria also faces the challenge of not having a deep water port, therefore restricting the number of vessels it can accommodate. It currently only accommodates for vessels a quarter the size of the world’s largest ships (The Economist, 2014). According Shoprite, figures suggested that it takes 117 days for stock to reach its stores in Nigeria. Moreover, the voluminous paperwork at customs has affected the loss of perishable goods (The Economist, 2014).
The fragmented nature of the Nigerian market makes it difficult to forecast sales. This difficulty has contributed to the various transport bottlenecks that make supply erratic in Nigeria, prompting retailers to keep a larger amount of stock in reserves to compensate for the lags in its supplies. According to Games of the South Africa- Nigeria Chamber of Commerce, Shoprite has had to keep a warehouse full of flour to ensure a constant supply of fresh bread for its consumers across its Shoprite stores (The Economist, 2014).
The lack of reliable power supply also remains a constant challenge for businesses in Nigeria. The costs of running diesel generators can become very expensive, which has caused companies to rely on their own power supplies to continue trading. According to World Banks “Doing Business” survey, Nigeria is ranked 185th out of 189 countries regarding the ease of getting electricity (The Economist, 2014), Nigeria’s lack of power will continue to curb growth if this issue is not addressed.
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Nigeria’s power stations generate 4GW of electricity, which is a tenth of the capacity in South Africa (The Economist, 2014).
2.6 Modes of market entry
Internationalisation can best be defined as “…the outward movement of a firm’s international operation” (Johanson, and Wiedersheim-Paul, 1975:23). Furthermore, internationalisation can be regarded as a gradual, sequential process through different stages. Entry modes have been divided in two ways: exporting (from a direct point of view or by means of independent channels) and foreign direct investment (FDI) (Exporting, Contractual Agreements, Joint Ventures and Wholly Owned Subsidiary) (Ovcina, 2010:16). Entry modes may depend on the scale of the host country or whether a company has control over the invested intangible and tangible assets or not. Several modes of market entry have surfaced as part of the Internationalisation theory. Below are the leading modes of entry most relevant and relatable to the study that will be undertaken.
Exporting: Exporting allows companies to diversify their sales in the international market due to low cost and low risk involved (Wild and Wild, 2010:43). Contractual agreements (Licensing/Franchising): It is defined as “an organisational agreement form based on a legal agreement between a parent organisation (the franchisor) and a local partner (the franchisee) to sell a product or service using a brand name and process that has been developed and is owned by the franchisor” (Alexander and Doherty, 2010; 260). Joint venture (JV). A Joint Venture is a company created and jointly owned by two or more parent companies (Child, Faulkner, and Tallman, 2005:78). Establishing Wholly Owned Subsidiaries (WOS). This can be divided into two entry strategies, Greenfield and Acquisition. The former refers to starting a company from the beginning, requiring more development costs to establish the business, and the latter refers to acquiring full control of a company through purchase. (Ovcina, 2010:20).
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In order to choose the right mode of market entry, the right strategy should be used based on the assessed risk of the market. Leaders thus need to decide whether or not there is a need to establish standalone businesses or consider entry via acquisition or entry via partnerships and Joint Ventures, or through participation by licensing the company’s products and services to another company. Choosing a mode of market entry has its advantages as well as its disadvantages, For example, entering via a Greenfield investment can result in larger profit margins if successful, but comes with greater risk for companies that lack local market knowledge and access to distribution channels or political connections. Furthermore, Greenfield companies are able to make quicker decisions as it is not necessary to discuss issues with different partners, whereas Joint Ventures and merged companies have to. Greenfield companies are also protected against other companies, copying their ‘knowhow’ (Peng, 2003:275-296).
Conversely, entering into African markets via acquisition tends to be expensive and time consuming. The advantages, however, may mean an immediate access to existing networks and distribution channels. Acquisitions may provide deep local market insight that a company may use to scale up the business to address other markets. However, Joint Ventures may provide a faster way to gain market access to the local market and distribution channels. It should be noted that choosing the right partner requires time and appraisal of ownership, control, pricing and local partner capabilities (Accenture, 2011).
Licensing has provided the least risk in terms of market entry based on its lowest- cost option to expand its market reach. It does, however, carry risks, such as compromised brand equity and limited scope to exploit local market opportunities (Accenture, 2011). Furthermore, by entering into a Joint Venture, it would suggest two different organisations would have to agree on different organisational cultures, which can be a challenging process (Child et al., 2005:43). Further comparison of the different entry modes is shown in table 2.1
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Table 2.1: Comparison of different entry modes
Source: Lasserre (2007:209)
It should be taken into consideration that the above table is a theoretical situation, as modes of market entry may be industry dependent. By assessing modes of entry based on their specifics, the scores may differ. For example, a Joint Venture might require higher start up investment than Wholly Owned Subsidiaries, based on the scale of the business profile. In addition, the role of returns on investments (ROI) when referring to Licensing/Franchising may suggest lower figures than Wholly Owned Subsidiaries, Joint Venture and Acquisition, based on the contractual agreements of the licensor/franchisor. In addition, entry modes should be assessed on both merit and defect, as there is no single rule to follow. The use of modes of market entry is therefore different for companies in different markets, as one company may use one entry mode and later change to another (Ovcina, 2010:7).
The focus of this study is to observe the market entry and strategies of South African retail companies, focusing on the Nigerian market. Therefore, in the case of the retail sector, the industry may affect the decision of the entry mode used. With regards to the internationalisation of the retail industry in particular, it is not necessary to use all the different entry modes available, but rather emphasise the main entry modes being applied. Dawson (2006:1-15) suggests four main entry modes which retail companies should consider:
Own subsidiary (Greenfield investment) Acquisition
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Joint Venture Franchise
Authors such as Alexander and Doherty (2009:11) have further suggested modes of entry such as flagship stores, merger, exporting/wholesaling, internet sales concessions as other relevant entry modes options for the retail industry. For the continuation of this chapter, however, Dawson’s retail mode of market entry will be used to assess the mode of market entry for emerging markets.
2.7 Modes of entry: Retailers in emerging markets
Expansion into emerging markets has been driven by a saturated, highly competitive and shrinking domestic market, in a time where political reforms in countries have led to rising economic development, urbanisation and middle class incomes that demand first world retail services (Weatherspoon and Reardon, 2003:333). In terms of internationalisation strategies, there are limited modes of entry options available that companies can apply. The entry modes that will be discussed include Wholly Owned Subsidiaries, Franchising and Joint Ventures.
2.7.1 Greenfield
When dealing with emerging markets, issues such as economic and political instability need to be considered. Such conditions may be a deterrent for choosing Greenfield as a mode of market entry in emerging markets (Pelle, 2007:12). In addition, Greenfield is a slow entry mode, as it takes years before facilities are operational. Therefore, the risk of losing potential opportunities may be more likely with this entry mode (Peng, 2003:275-296). Recently, however, companies have strategically improved the delay of Greenfield entry modes by setting up satellite offices in emerging markets.
However, Greenfield entry may be potentially damaging to companies as low sales may hamper the company’s growth due to the overhead costs in the early stages. The risk involved with highly invested Greenfield businesses includes the amount of flexibility companies have with regards to situations where the company may need to pull out of the country due to political changes in the society (Peng, 2003:275-296).
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In the case of retailers, Dawson (2006:62) recommends that companies use Greenfield modes of market entry “in cases where the retail formula in question is very different from that operating locally and where firms already enjoy a highly developed acquired skill set”. The use of Greenfield in the retail industry is commonly used during internationalisation, but several mistakes are usually made, according to Alexander and Doherty (2009:11): retailers have been known to replicate domestic operations abroad. Therefore, the recommendation for companies would be to do effective market research in order to ensure avoidance of failure and withdrawal. It is not to say, however, that the replication of domestic operation could not be successful.
The replication of the domestic market strategies as a form of market entry in the host country can be successful if implemented on the basis of economies of location. Therefore, it applies only to countries that share similar, geographically close markets, with similar retail cultures, regulations and distribution systems (Alexander and Doherty, 2009:12). Doole and Lowe (2008:5) suggest that this mode of entry will do well for companies looking to offer their products and services in the long run in a foreign market that is politically stable and that allows the company to have full ownership and control its strategic objectives.
2.7.2 Acquisition
With regards to issues of slow entry, acquisition entry mode should be considered as preferable to Greenfield entry. Acquisition entry mode gives investors quick access to the acquired companies’ distribution channels, market knowledge and employees (Ovcina, 2010:12). It should be considered, however, that this entry mode is more costly and riskier compared to Greenfield investment (Lasserre, 2007:34; Peng, 2006:332; Dawson 2006:24; and Alexander and Doherty, 2009:45). The challenge lies in the process of integrating the acquired company, which leads to failure and weak performance (Child, 2005:2).
The lack of transparency also remains an issue that hamper the effectiveness of an acquisition entry in emerging markets (Peng, 2006:275). According to Games (2008:4), for South African retailer’s expanding into African markets, Mergers and
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Acquisitions are not popular choices based on the lack of suitable acquisition targets, given the informal nature of the retail sector in Africa.
According to Dawson (2006:1-15), however, acquisition is a typical entry mode commonly used by retail businesses. He further recommends that companies ought to acquire a chain that is a market leader in its market particularly when entering a mature market. Acquisition-based mergers have also been used in retail internationalisation, as one retailer seeks to buy and take over another and restructures it into an existing business model, making it a Wholly Owned Subsidiary (Slangen and Hennart, 2007:403).This example was well executed in South Africa (SA), when United State of America (USA) based Wal-Mart acquired a 51% stake in the Massmart retail chain in 2011 (Bloomberg, 2011).
Alexander and Doherty (2009:12) have suggested some examples of the reasons as to why retailer acquisitions fail:
Challenges in the management of the acquired company which has been poorly managed in the past; Challenges in integrating the two company cultures; and An underestimation of the cultural difference of the local environment compared to that of the acquiring company.
2.7.3 Joint Venture
In order to have sound understanding of Joint Ventures, the three types of Joint Ventures will be discussed Peng (2006:1-19):
Minority Joint Venture (less than 50 % of equity); 50/50 % Joint Venture; and Majority Joint Venture (more than 50 % of equity).
From an emerging market point of view, the most challenging process within the Joint Venture is to form a partnership. According to Child (2005:43), cultural differences within the organisation are the primary reason Joint Ventures become challenging. However, in terms of entry modes minority, Joint Venture may be the
32 only feasible entry mode based on the regulations or a discouragement of solo investments in certain markets (Cavusgil, Pervez, Ghauri and Agarwal, 2002:73). In India for example, a single foreign retailer can only own 51% of a Joint Venture, while multiple brand retailers are only allowed to set up wholesale or franchise operations (Alexander and Doherty, 2009:15).
Joint Ventures allow companies to enter markets and reduce operational costs and develop new technology (Hollensen, 2004:33). With regards to the retail industry, Joint Ventures have become an important player, as local partners can be used to cater for the market and support the country’s local industries. According to Ovcina (2010:15) the challenge lies in finding sufficiently capable local partners to create a Joint Venture. It should, however, be noted that this is not a guarantor for success, but Joint Ventures can be seen as a safe option in emerging markets that have political and economic uncertainty. According to Ovcina (2010:15), Joint Venture companies can overcome challenges based on reduced transaction costs. Peng (2006:275-296) recommends that companies compare and contrast different entry modes before making the final decision.
2.7.4 Franchising
Companies entering via a Franchising entry mode share the costs and risk associated with entering the market. By entering into such agreements, the franchisor loses control and the potential income will be divided by the various partners (Alexander and Doherty, 2009:15; Peng, 2006:275-296; Hollensen, 2004:24). However, the use of a Franchising market entry approach allows companies to expand rapidly when entering markets with a reduced risk, whilst controlling the key business functions (Ovcina, 2010:15).
International Franchising is one of the most preferred modes of entry in the international Franchising of retailing. However, this mode has found to be challenging in emerging markets based on the lack of suitable franchisees. There are two generic types of international franchising, outlined by Sternquist (2007:281) as:
Direct franchise, which is an individual application that has been given to one owner on its application and
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Master franchise, which refers to an individual which is given a right to expand the business model in a particular geographic are (region, state or country).
The master franchise system allows the franchisee, who generally can be regarded as an entrepreneur, to sell the franchise in a particular region, which this is seen as strategic move to capture opportunities in foreign markets (Kotabe and Helsen, 2008:34). The master franchise holder then becomes a sort of intermediary between the corporate franchisor and the individual franchisees, which has been seen as the newest form of retail expansion (Sternquist, 2007:281). However, the master Franchising agreement favours the franchisor, as most of the expansion of the operation in the new market is carried out by the master franchisee in the particular territory (Quinn and Alxander, 2002:264-276). This makes Franchising a simpler and more cost effective mode of entry, given that the local partners understand the market conditions better than the franchisor.
In the case of India, as an example, of an emerging market, foreign ownership of retail stores is prohibited by government regulations, demonstrating that a country’s regulatory framework, as well as government actions or inactions, can also affect the development of franchisers in any nation (Hoffman and Preble, 2004:102). As a result, the Franchising model is the most suitable option in that market. According to Dakora et al. (2010:748-754), in the case of Africa, the majority of the South African retailers expanding into Africa choose to open their "own stores" and, to a lesser extent, follow the Franchising model. This view echoes the previous claims made that partnerships and acquisitions in emerging market are difficult to execute based on the lack formal retail systems and suitable acquisition targets.
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Chapter 3: Research Methodology
3.1 Introduction
A research methodology can be defined as the part of the research that explains why the author uses a specific method, the reasons why the subject is chosen and how the research problem is identified (Kothari, 2004:44). In this research, both a qualitative and quantitative research method will be used in order to gain insight into the modes of entry for South African companies doing business in Nigeria. By using this mixed method, the author will be able to gain empirical evidence from experienced professionals in the retail industry in Nigeria.
Chapter 3 will outline the manner in which the research was conducted, beginning with the research objectives and philosophy, followed by the research approach. The research methodology will be illustrated through a research design. A research design looks to describe the stages of the research, the required information that was gathered and the methods used to prepare the research (Burns and Grove, 2003:55). The research methodology will then discuss methodological choice used and why it was chosen.
Finally, the research will discuss the scientific methods used to obtain the primary data, which will address the research’s problem statement. In addition, this study will use semi-structured interviews and questionnaires in order to collect the primary data from various experienced retail professionals and industry specialists. Furthermore, the questionnaire types and the forms of interviews will be discussed. A content analysis process will then be discussed. This process will function as a progressive academic study looking to derive essential insights for South African retail companies in Nigeria.
3.2. Research objectives
The aim of this study is to identify the market entry and strategies of South African retail companies, focusing on the Nigerian market. This project stems from continuous interest of South African companies looking to operate in Africa, particularly in the retail sector. This research will seek to aid South African retail
35 companies looking to do business in Nigeria; it will further identify frameworks that may highlight business friendly approaches for new entrants in the retail sector.
The information gained from this research will be mutually beneficial to both Nigeria and South Africa counterparts looking to maximise business opportunities in emerging markets. This analysis will compare and contrast the data from the chosen companies in order to assess how different companies penetrated the Nigerian market, thus providing an insight into the similarities or differences across various industry sectors. The research could also serve as a guide to South African retail companies looking into market entry in Nigeria.
The following will be emphasised by looking at modes of market entry strategies when positioning South African companies in Nigeria:
• To conduct an analysis of South African retail companies’ modes of market entry and strategies for doing business in Nigeria. • To construct a strategic framework for how South African retail companies would succeed when entering this business environment. This framework would be assessed from the collection of data on the background and success of each business, strategy and modes of market entry used once in Nigeria. • To identify the operational challenges involved when doing business in Nigeria. (This segment will be discussed during the data collection process.)
The secondary research objectives:
• To determine the competitive factors impacting the ways in which South African retail companies enter the Nigerian market. • To identifying new market entry strategies that can be followed by South African companies when entering Nigerian markets. • To identify the barriers that prevents South African retail companies from entering Nigerian markets.
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3.2.1 Research philosophy
This research follows a positivism approach, which, according to Coolican (2004:34), is an approach based on the knowledge gained from a set of verifiable experiences rather than introspection or intuition. Positivism will be concerned with facts rather than impressions, which will aid in making this research credible from a notion of observable social reality. Another component that will aid the research is the assumption that the researcher will be independent and unaffected by the subject of the research, thus making the researcher non-biased and objective (Remenyi et al., 1998:66).
Cohen and Crabtree (2006:93) suggest that positivism is grounded on theoretical knowledge and objective reality. The following positivism position will define the correct methods needed to be applied when conducting such an approach.
● Validity: the extent to which a measurement approach or procedure gives the correct answer. In order to ensure the validity of the research, careful research will be conducted into the respondents’ past interview experiences and academic credibility.
● Reliability: the extent to which a measurement approach or procedure gives the same answer whenever it is carried out. In order to ensure the reliability of the research, respondents will participate based on their industry insight they can provide on the subject matter.
● Generalisability: the extent to which the findings of a study can be applied externally or more broadly outside of the study context. In order to ensure the generalisability of the research, responds will be asked to explain in a general and widely understandable manner.
In addition, this research will assess the study behaviour under controlled conditions, in order to establish the effects of single variables. This step will allow for an objective approach, where different observers would be able to agree on what has been observed (Johnson and Christensen, 2008). This approach will support the research question and objectives discussed and it will aid testing the hypotheses of the research design.
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3.2.2 Research approach
This study will adopt a deductive approach that will also be exploratory in nature. This deductive approach will seek to develop a theory or hypotheses whereby a research strategy will aim to test the hypotheses. According to Saunders et al. (2012:450), a deductive approach will explain the casual relationships between variables. This research, for example, will establish upon the reasons for best market entry practices for South African retail companies in Nigeria. Patterns will then be studied in order to assess whether there is a relationship between the absences of the variables or not. Hypotheses will then be formed in order to test the variables against the hypotheses.
New insights will be collected from senior executives and industry specialists. An exploratory study is a valuable means of finding out “what is happening; to seek new insights; to ask questions and to assess phenomena in a new light” (Robson, 2002:59). This research will be based on the experience of these individuals in the modes market entry in Nigeria.
3.2.3 Research design
The research design used in this study was essential in addressing the research objectives: How can the best practices of successful South African retail companies in Nigeria produce a strategic (market entry) framework for other organisations to adopt?
The research design will seek to act as a “blueprint” on the way in which the research will be conducted. The research design will address the type of study undertaken, as well as the limitations and challenges in the method in which the study will be conducted (Babbie and Mouton, 2001:74-77).
This research design will be a mixed method approach that will seek to understand particular phenomena in a context specific setting using a naturalistic approach. According to Denzin and Lincoln (1992:106), human behaviour is unlike the form of physical objects, therefore suggesting that human behaviour cannot be comprehended without reference to its meanings and the purpose directed through human activities. This approach will allow for an analysis of the strategy implemented and an understanding of the positioning plan the company executed.
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This section will look at how this research will be influenced based on the design presented.
3.3 Methodological choices
This study will follow both a qualitative and quantitative research method (a mixed methods approach), which will aid the researcher to gain an in depth understanding into the modes of entry for retail companies in Nigeria. Using both these methods will help the researcher in identifying a collection of techniques that obtain a comprehensive descriptive and epistemological base from South African retail professionals and industry specialists in the Nigerian market. Furthermore, this approach will enable the reader to gain a rich understanding of the processes and context of the research.
A mixed method approach uses both quantitative and qualitative research methods and combines the data in order to benefit from the strengths of both of them (Harwell, 2011:151).This approach will allow the researcher to analyse qualitative data quantitatively and quantitative data qualitatively. According to Tashakkori and Teddlie (2003:34), the use of multiple methods can be useful to research as it may provide better opportunities to answer the research question and allow for better evaluation of the research findings. For example, a mixed method approach may allow the researcher to conduct interviews at an exploratory stage, in order to get an understanding of key insights, before using a questionnaire to collect the descriptive or explanatory data.
3.3.1 Qualitative research
Qualitative research refers to the understanding of social discourse and its interpretation as opposed to passive acceptance (Babbie and Mouton, 2001:270). According Welman and Kruger (2001:77), a qualitative research method makes it difficult for researchers to identify cause and effect relationships. However it does describe actions within a specific setting.
According to Hair, Black, Babin, Anderson, and Tatham, (2006:174), qualitative research methods are best used when researchers or decision makers are:
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Identifying opportunities, business problems or the establishing of information requirements; Obtaining insights into the motivation, attitudinal, emotional and personality factors which influence marketplace behaviour; Building of models or theories describing the marketplace behaviours or relationships; and/or Determining the effectiveness of the organisations strategies on its marketplace behaviours.
The qualitative part of this research will provide the author with the opportunity to interview individuals from South African retail companies and have an in depth discussion based on the modes of market entry in Nigeria. The qualitative research will allow the research to use “why, what and how” types of questions in order to encourage the respondents to give their insights without limitations, which could thus lead to unexpected answers or new ideas (Wertz, Charmaz, McMullen, Josselson, Anderson, and Mcspadden, 2011:32)
3.3.2 Quantitative research
Quantitative research can be defined as a data collection technique that uses questionnaires or data analysis procedures, such as graphs and statistics, to generate or use numerical data (Saunders et al, 2012:415). However, quantitative studies may attempt to control variables whilst qualitative research may be exploratory enough to research opportunities usually unforeseen by researchers.
Quantitative data is collected in a raw form. Once processed, the data can be turned into information through quantitative analysis techniques. Quantitative analysis techniques such as graphs and statistics allow the author to explore and describe trends within the collected data. The quantitative research will be used to create tables and diagrams that will show the frequency of occurrences by using statistics to show how the indices enable a comparison between variables and the statistical modelling (Saunders et al., 2012:415).
The quantitative part of this research will use questionnaires to gather data from South African retail employees. The sampling method that will be used as part of the questionnaire will be a convenience sampling, which is a type of non-probability
40 sampling that will gather data from employees who are available for the data collection process at the various South African retail companies (Lavrakas, 1993:44).
In the case of this research, the mixed method will use with both qualitative and quantitative methods through a parallel sampling, which will aim to produce two sets of data that will then be analysed qualitatively.
3.4 Research methods
According to Myers (2009:203), a research method is a strategy of enquiry, which moves from the underlying assumptions to research design and data collection. This research will be empirical in nature and it will use a blend of primary and secondary sources. The research will contrast the findings based on the interviews, questionnaires and the literature. The research will seek to understand the constraints are faced by the South African retail operators in Nigeria with regards to its market entry.
The research method used will be a cross-sectional study on the current approaches South African companies have made when conducting market entry in Nigeria. According to Saunders et al. (2012:155), cross-sectional studies seek to describe the incidences of a phenomenon or explain how factors are related in different companies. From a time horizon point of view, this research will use a qualitative method that will conduct this research from a snapshot perspective across a short period of time. Figure 3.1 below will illustrate the research methodology framework used in this study:
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Figure 3.1: Research methodology framework
Interviews and Questionnaires
Senior SA Retail Excecutives Employees
Data Validation
Data and Content Analysis
Figure 3.1 shows the steps in which the data collection process will occur. Semi- structured interviews and questionnaires will be conducted with employees from South African retail companies in Nigeria.
3.5 Data collection
Primary data for this research will be collected through the use of interviews and semi-structured questionnaires, which will be used as a guide to the interview questions. According to Hox and Boeije (2005; 539) primary data can be regarded as the data that is gathered to address the research problem through methods that are aligned with the research problem. In so doing, a mixed method approach will be conducted with the selected senior executives and industry specialists across South African retail companies. The interviews will be non-standardised, one to one interviews and will include in depth questioning. The questionnaires used will be Internet- and Intranet-mediated, targeted at employees from South African retail companies. The interview questions and the questionnaires were linked to the research objectives identified in chapter 1. Both the interview questions and the questionnaire will be used in order to achieve an in depth understanding into the modes of market entry for South African retail companies in Nigeria.
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3.5.1 Interview
Interviews can help a researcher gather reliable and valid data that aid in answering the research question and objectives. Research has found that they are more likely to agree to interviews, rather than completing a questionnaire, especially when a topic is interesting and relevant to the respondent’s current work (Saunders et al., 2009:324). Respondents may feel reluctant to participate in questionnaires due to the time spent in answering the questions, especially if the question is not entirely clear. The use of personal interviews, where appropriate, may achieve better responses than using questionnaires (Saunders et al., 2009:324).
Interviews have different forms and may serve a distinctive purpose in research. Interviews can be divided into two categories: standardised interviews, which are normally used to gather data that is subject to quantitative analysis, and non- standardised interviews, which are used to gather data that is become subject to qualitative analysis (Saunders et al., 2009:324). The bellow figure, figure3.2, will aid in explaining the different types of standardised and non-standardised interviews:
Figure 3.2: Forms of interviews
Source: Saunders et al., 2012
This research will use non-standardised interviews on a one to one basis. This research will be exploratory in nature and it will conduct the research through semi- structured and in depth interviews. In an exploratory study, in depth interviews can
43 be very helpful to “find out what is happening and to seek new insights” (Robson 2002:59). In an explanatory study, semi-structured interviews may be used in order to understand the relationships between variables, such as those revealed from a descriptive study (Saunders et al., 2012:324). Furthermore, semi-structured and in depth interviews will provide the researcher with an opportunity to probe answers, where the respondent will be able to explain, or build on, their responses (Saunders et al., 2009:324). This approach may also provide the researcher with discussions that were not previously considered and which may be relevant to the research question and objectives.
The interviews conducted in this research will sample senior executives and industry specialist based on their experience and insight they can provide on the subject matter. The selected senior executives have experience in the retail industry and have worked for South African retail companies at a strategic level. These professionals have over 10 years working experience. These interviews will be recorded and, once finalised, they will be immediately transcribed by the author.
3.5.2 Questionnaires
Questionnaires can be used for explanatory or descriptive research purposes. As part of the descriptive study, the questionnaire will aim to understand organisational practices. This approach will enable the author to identify and describe the variability in different phenomena (Saunders et al., 2012:152). However, this study will also follow exploratory or analytical research, which will examine and explain the relationship between variables and the cause and effect relationship (Saunders et al., 2012:152).
Questionnaires can be defined as a well-established research tool that captures the data from the respondents, including opinions, characteristics, attitudes, views and beliefs with regards to the topic of the research (Bird, 2009:1307). Using a questionnaire will allow the author to question a sample or respondents in order to achieve information for analysis purposes (Bird, 2009:1307).
Questionnaires will enable the researcher to discover attitudes that can be complemented by the in depth interviews, which will aid in exploring and understanding the attitudes of the respondents (Saunders et al., 2012:152). In
44 addition, questionnaires – if done correctly – will enable the data collection process to be administered with less skill and sensitivity on the part of the author (Jankowicz, 2005). The below figure, figure 3.3, will aid in explaining the different types of self- administrated and interviewer-administered questionnaires:
Figure 3.3: Types of questionnaires
Source: Saunders et al., 2012:152
This research will use Internet- and Intranet -mediated questionnaires, which will be administered in conjunction with an email. This approach will provide a greater control, because most respondents prefer to read and respond to their emails at their personal computers (Witmer, Colman, and Katzman, 1999:145). The Internet- and Intranet-mediated questionnaires (electronic) will be an automated and cost efficient process, which will save the researcher expenses and time.
The quantitative data gathering method that will be used for this research on the modes of market entry for South African retail companies will be based on a questionnaire design and format that will seek to validate and enhance the interview part of the research. Therefore, the questionnaire design will look to consider the structure of the questions and the choices about the kinds of response formats that are in line with the research topic and question.
The questionnaires will be online and be self-administrated. The various respondents who will participate in this research will be required to fill in the questionnaire without the help or support of the author. The questionnaires conducted in this research will sample employees from South African retail companies who can provide insight on the subject matter. The employees in the retail industry would have had to have worked for South African retail companies at an entry/medium level.
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3.6 Data analysis
The interviews and questionnaires conducted will be analysed by means of content and descriptive analysis, given that they address the research themes. The semi- structured questionnaire will form part of an interview guide, wherein respondents will be asked the same questions. This study will involve non-probability sampling, which is more of a purposive sampling. It can be defined as a technique where individuals or groups are selected based on the information provided. The following figure will illustrate the process of content analysis, which will be used in this study. The data analysis will conducted according to the following four steps (Creswell, 2003: 190):
Figure 3.4: Data analysis process
Source: Creswell (2003:190)
Step 1: Organise and prepare data: this step involves the preparation of data through transcribing the interviews and organising and sorting the data in a logical manner.
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Step 2: Read through all the data: this stage involves the meticulous reading of the transcribed data, in order to understand the meaning of what is being said by the interviewee and to classify and group the data according to modes of market entry.
Step 3: Begin the coding process: this step involves the coding process through the grouping into categories relating to the modes of market entry.
Step 4: Generate description/interpretation: the final stage involves the interpretation of the data and then linking it to the relevant literature.
A meticulous data analysis will be conducted, whereby the coding process will be read thoroughly and transcribed according to the objectives of the study. The data will be interpreted into a theoretical framework/recommendations for the best practices for successful South African retail companies in Nigeria. Furthermore, the data analysis will aim to produce a potential market entry framework for other organisations to adopt.
3.7 Validity and reliability
In order for this research to be credible, validity and reliability of the research will be considered. A research will be conducted on the respondents’ past interview experiences and professional work experience. The qualitative part of this study will ensure that a cordial and trustworthy rapport is established between the respondents prior to the interview in order to gain trust and create a conducive environment to stimulate academic engagement.
Trustworthiness is a critical concept that allows the researcher to describe the virtues of qualitative terms outside of the parameters usually applied in quantitative research (Given and Saumure, 2013:33). Trustworthiness can be elaborated as credibility, transferability and dependability, which can be regarded as an external validity, and conformability, which relates to the presentation of the results (Saunders et al., 2009:157). Therefore, trustworthiness will promote the reliability of the study, allowing the researcher to analyse the qualitative work in order to make sure that the research fits into the realities of qualitative research.
The quantitative part of this study will ensure its reliability through the most popular reliability tests used today, the Cronbach's alpha test. This test will determine the
47 internal consistency or average correlation of items in a questionnaire. By using this reliability analysis, the study will determine the extent to which the questions in the questionnaire are related to each other. This approach will attempt ensure the validity and reliability of data received.
Finally, in order to ensure the overall reliability and a validity of the research, the use of a verification method will be needed. The verification method used for this type of study will be the triangulation method. According to Saunders et al. (2009:298), the triangulation method refers to the use of different data collection techniques within one study in order to ensure that the data is credible. In this case, the research will use qualitative data collected using semi-structured interviews, which will then be triangulated using quantitative data collected by questionnaires.
3.8 Research limitations
The study will focus on Nigeria specifically and, although new entry strategies may be similar to other African markets, the focus is limited to Nigerian market entry strategies only. The possibility of limited resources and not being able to sample an entire population are other the key limitations that have been identified. In addition, finding experienced retail professionals with experience in Nigeria may be difficult.
Furthermore, securing data from South African companies in Nigeria may be subject to confidentiality of the content strategies. Respondents may need to keep certain information from their competitors based on the competitive nature of the retail industry. Furthermore, respondents may become subconsciously biased, based on their association with their organisation.
Finally, time constraints may limit the completion of the research based on data required for this exploratory study. Thus, scheduling of time for interviews may be difficult for the experienced respondents. The risk of voluntary participation may mean certain respondents may opt to not continue with the research, which may affect the completion of research.
3.9 Objectivity
Objectivity can be defined as the avoidance of (conscious) bias and subjective selection during the reporting of a research (Saunders et al., 2009:627). Positivism
48 as a type of philosophy mentioned in sections above will consider the interpretation of the research based on the set of observable social realities and therefore attempt to recognise these occurrences in terms of generalisation point of view. However, it is equally important to consider that an objective approach may also be needed in order to ensure that the research is undertaken in a reliable, valid and ethical manner.
Objectivity ensures that the data collection process in a research is reported accurately and fully, with the aim to avoid exercising subjective selectivity (Saunders et al., 2009:627). Thus the reporting process is done in an ethical manner without impairment. Objectivity duty represents a responsibility on the author, as it sets a trust placed on the author to research with integrity and ethically. This duty ensures that the author represents the data honestly with regards to analysis and reporting stages of the research. According to Zikmund (2000:48), objectivity includes the ability not to be selective about the data that is reported or and misrepresenting the research’s statistical accuracy. A lack of objectivity may distort the conclusion and any associated recommendations. In order to ensure the objectivity of the research, the study will aim to avoid biased feelings towards respondents and their opinions.
3.10 Ethics
Ethical consideration has an important implication to the way in which the author negotiates access to respondents and the collection of data. Some of the ethical issues that need to be considered will be discussed below:
Informed consent: informed consent is the position achieved when the intended respondent is fully informed about the nature, purpose and use of the research that is undertaken and their role in it and whether or not their consent to participate is provided or freely given (Saunders et al., 2009:624). It is important to consider the ethical issues such as informed consent, as it could lead to the possibility of deception and harm towards the respondent. As informed consent gives the right to the respondent to participate according to their own will and informs them of the risks and benefits associated with the participation (Rocha, Hammond, and Hawkins, 2005:380-390). Therefore, this research will aim to provide respondents with full clarity on the project by
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disclosing the time needed to conduct interviews. Furthermore, they will also be informed of the aims and objectives of the research through an official permission letter from the University of Johannesburg. Privacy: privacy has been regarded as the primary ethical concern, which relates to the rights of individuals to not participate in a research and to their treatment once the respondents agrees to participate (Saunders et al., 2009:629). The research will provide respondents with the right to remain anonymous and it will be the author’s responsibility to keep that information confidential. Therefore, respondents will give their consent as to whether or not they want to state their name, or provide other information that may identify them. A consent form will be given to respondents in order to give the author the right to use their identity during the research. Confidentiality: confidentiality relates to the access to the data provided by the respondent and the need to keep the data secret or private (Saunders et al., 2009:620). Confidentiality may be needed to keep the respondent or organisation anonymous. Therefore, it will be necessary that respondents of this research are given clear assurances about the issues of confidentiality. A declaration of confidentiality will be discussed with the various respondents both in the forms of the introductory email and written agreements as part of the interview and questionnaire process. This process is particularly important for respondents who would like their information regarding addresses, names and other personal information to be kept private (Economic and Social Data Service, 2007). With regards to the research, it is important to note that the results will kept confidential and it will only form part of the Masters Dissertation that is conducted. Harm: harm can also be regard itself as maleficence and the cornerstone of ethics ensures that respondents or the researcher does not violate the right of an individual or organisation. Therefore, as part of this study, this research will avoid the use of harm, particular through the way the author obtains consent, preserves confidentiality, and collects data and the way in which information is used, analysed and reported. Voluntary participation: voluntary participation is the active choice a respondent makes to participate in a research. It also important that the
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respondent is ensured that their participation is voluntary (Dantzker and Hunter, 2010:203). The respondents for both the interview and the questionnaire will act voluntarily. Respondents will be able to stop participating at any time if they feel there is need to do so.
In addition to the abovementioned factors, this research will be impartially conducted and undertaken in an objective manner. All findings will be disclosed regardless of conflict and discernment. This research will be undertaken legally, in an ethical manner and with a professional conduct throughout the process.
The research methodology presented has defined the research design, data collection process and sampling process that will aim to validate the research. This research approach will address and define the exploratory study for the modes of market entry for South African retail companies in Nigeria. In addition, the research has considered the benefits and drawbacks of using the mixed method approach, and has decided that this approach will be the most appropriate for this study.
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Chapter 4: Research Results
4.1 Introduction
The previous chapter provided a detailed explanation of the research methodology that was used for this research. In this chapter the empirical results of the study and the interpretation of those results will be discussed. Chapter 4 will focus on the data analysis of the research results achieved from the interviews and questionnaires with South African retail employees and managers based on the research objectives as well as the main research question and sub-questions of the study. This part of the research will present the qualitative results from the interviews and the quantitative results from the questionnaires.
The research results will aim to shed some light on the mode of entry practices in Nigeria and discuss the most successful market entry strategy used by South African retail companies, the barriers that prevent South African retail companies from entering Nigerian markets and the competitive factors that impact the ways in which South African retail companies enter the Nigerian market. This chapter will provide the information needed for chapter 5, which will consist of the research findings, conclusion and recommendations.
4.2 Qualitative results from the interviews
Five interviews were conducted with South African retail managers and industry specialists who deal with operations in Nigeria. The interview questions and transcribed interviews are available in the appendix section. The interviews were carried out from the 1st – 31st of July in 2015. Employees from South African retail companies in Nigeria gave their insight based on their experiences and knowledge on the modes of market entry and strategies for South African companies in Nigeria. The interview style was conversational in nature and provided few restrictions with no leading questions. The interview process allowed for a shared process where the researcher and the respondents participated in generating data that was synthesised through reflection and verbal interaction and where new aspects of the phenomenon could be discovered (Kraus, Piff, and Keltner, 2009:2009-248).
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The interviews were transcribed verbatim and analysed for the purpose of a qualitative research analysis. The content of the interviews were then placed into categories. The various categories allowed for the data to be analysed on the frequency distribution of the key themes from the interviews. The following section will introduce a list of the respondent’s profiles and the results from the interviews. Each interview question will be used to provide a table illustrating the frequency distribution of the key categories from the interviews.
4.2.1. Respondents’ profiles
• Respondent A is a managing director at large sized South African retail company. Respondent A has over 25 years of experience working in senior management positions in Africa. The company runs several operations in Nigeria and its head office is situated in Cape Town. • Respondent B is a business development manager at large sized South African retail company. Respondent B has 10 years of experience working in supply chain and retail operations. The company also runs several operations in Nigeria and its head office is situated in Cape Town • Respondent C is a head of real estate for Africa at large sized South African retail company. Respondent C has 18 years of experience working in retail operations experience in Africa. The company also runs several operations in Nigeria and its head office is situated in Durban. • Respondent D is a former general manager of large sized South African retail company. Respondent D has 25 years of experience working in senior management positions in Africa. The company runs several operations in Nigeria and its head office is situated in Cape Town. • Respondent E is a former country manager for Nigeria at large sized South African retail company. Respondent E has 15 years of experience working in retail operations in Africa. The company runs several operations in West Africa and its head office is situated in Cape Town.
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4.2.1.1 Question 1: What are the country specific advantages that make Nigeria an attractive choice for investment?
This question was asked to identify the country specific advantages that make Nigeria an attractive choice for investment. The responses included market size, lack of formal retail businesses, untapped potential in the north of Nigeria, emerging middle class, housing development, customer aspiration and brand awareness, urbanisation, large and cheap well-educated workforce and the market gap in upper consumer segment. The majority of the respondents identified that market size and the lack of formal retail business as the specific advantages that make Nigeria an attractive choice for investment.
Respondent A stated that their company looked to exploit the lack of advanced technologies and innovations in the retail space in Nigeria. Respondent B stated that the significant development of housing for the moneyed middle class made it an attractive choice for investment. Respondent C stated that the country specific advantage that its company found attractive was the opportunity for retail companies in the north of Nigeria, based on the fact that the majority of the retailers were based in the south of the country. Respondent D stated that the country specific advantage that the company found attractive was a large and cheap well-educated workforce, and the high influx of Nigerians into major cities. Respondent E further cited that the country specific advantage that the company found attractive was that its brand name would have resonance in Nigeria and that there was a market gap in the upper consumer segment for quality retail goods. The table below provides the summary of the result.
Categories Frequencies Market Size 5 Lack of formal retail businesses 5 Untapped potential in the North of Nigeria 1 Emerging Middle class 1 Housing Development 1 Customer aspiration and Brand Awareness 2 Urbanisation 1 Large and cheap well-educated Workforce 1 Market gap in Upper consumer segment 1
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4.2.1.2 Question 2: What are the barriers that prevent South African retail companies from entering Nigerian markets?
This question was asked to identify the barriers that prevent South African retail companies from entering Nigerian markets. The responses included banned items, distance, regulatory bodies/customs, government, sailing time, insecurity, unpredictability of the political, economic and legal systems, corruption, taxation system, seasonality of market (weather), culture, supply chain inefficiency, rental costs and the lack of retail space. The majority of the respondents identified that banned items and regulatory bodies were identified as barriers that prevent South African retail companies from entering Nigerian markets.
Respondent A explained stated that the barriers that prevent South African retail companies from entering Nigerian markets were insecurity, the unpredictability of the political, economic and legal systems, the corruption, taxation system, the seasonality of the market and the culture difference between of both countries. Respondent B noted the government policies and regulations. Respondent C stated that the barrier that prevents South African retail companies from entering Nigerian markets was the sailing time from South Africa. Respondent D explained that corruption, taxation system, the seasonality of the market and the culture differences between of both countries were problems. Respondent E referred to supply chain inefficiency, rental costs and lack of retail space. The table below provides the summary of the result.
Categories Frequencies Banned items 5 Distance 1 Regulatory Bodies/customs 4 Government 1 Sailing time 1 Insecurity 1 Unpredictability of the political, economic and legal systems 1 Corruption 1 Taxation system 1 Seasonality of Market (Weather) 2 Culture 1 Supply Chain inefficiency 1
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Rental Costs 1 Lack of Retail space 1
4.2.1.3 Question 3: How did government policies and regulations impact on your market entry strategy in Nigeria?
Respondents were asked how the government policies and regulations impacted their market entry strategy in Nigeria. The responses included delays for the establishment of entities, delays at customs, repatriation of funds, the devaluation of currency, banned items, local sourcing, cost of doing business and import duties. The majority of the respondents identified that the delays at customs, banned items and the repatriation of funds affected by government policies and regulations ultimately impacted their market entry strategy in Nigeria.
Respondents A and B stated that they found that the repatriation of funds and the devaluation of the currency were the most important factors. Respondents C and B noted the delays for the establishment of entities impacted their market entry strategy in Nigeria. Respondent D further stated that they had problems with the cost of doing business and local sourcing. Respondent E further stated that import duties were impacting their market entry strategy in Nigeria. The table below provides the summary of the result.
Categories Frequencies Delays for the establishment of entities 2 Delays at Customs 5 Repatriation of funds 4 Devaluation of currency 2 Banned Items 3 Local Sourcing 1 Cost of Doing Business 1 Import Duties 1
4.2.1.4 Question 4: Which market entry strategies are most successfully used by South African retail companies when entering Nigerian markets, and why?
This question was asked to identify the most successful market entry strategies used by South African retail companies when entering Nigerian markets, and why. The
56 responses included trusted partner, Joint Venture/partnership, no set market entry strategy and Wholly Owned Subsidiary. The majority of the respondents identified that Wholly Owned Subsidiaries were the most successful market entry strategies used by South African retail companies when entering Nigerian market.
Respondents A, D and E all identified that the most successful market entry strategies used by South African retail companies when entering Nigerian markets was Wholly Owned Subsidiaries. Respondent B stated that a trusted partner local partner would be the most successful market entry strategies, while respondent C stated that there was no set market entry strategy for Nigeria. The table below provides the summary of the result.
Categories Frequencies Trusted Local Partner 1 No set market entry strategy 1 Wholly Owned Subsidiary 3
4.2.1.5 Question 5: What supporting data is available when considering the modes of market entry in Nigeria?
Respondents were asked about the supporting data available when considering the modes of market entry in Nigeria. The responses included limited supporting data, reliance on consultants, regulations, intellectual property rights, return on investment and involvement in the market, local partner and limited formal research available. The majority of the respondents identified that limited supporting data was available when considering the modes of market entry in Nigeria.
Respondents A, B, C, D and E agreed that there was limited supporting data available when considering the modes of market entry in Nigeria. Respondent A further explained that the return on our investment, the level of involvement in the market, the regulatory and intellectual property rights were the type of data that was considered for the modes of market entry in Nigeria. However, respondent B said that its company relied on consultants. Respondent C stated that there was little formal research available. Respondent D further added that the supporting data available when considering the modes of market entry in Nigeria would best be gathered through a local partner with a well-developed network. Respondent E
57 added that their market entry into Nigeria was done with little concrete understanding of the terrain. The table below provides the summary of the result.
Categories Frequencies Limited supporting Data 5 Reliance on consultants 1 Regulations 1 Intellectual property rights 1 ROI and Involvement in the market 1 Local Partner 1 Limited formal research available 1
4.2.1.6 Question 6: Are there any differences in your opinion, between market entry strategies in Nigeria to other regions/countries across Africa?
This question was asked in order to identify the differences between market entry strategies in Nigeria and other regions/countries across Africa. The responses included no, but remains the most difficult and each country is unique. Most of the respondents identified that each country is unique with regards to the differences between market entry strategies in Nigeria and other regions/countries across Africa. The table below provides the summary of the result.
Categories Frequencies Each country is Unique 5
4.2.1.7 Question 7: To what extent did you need to tailor your product and service offering for market requirements In Nigeria?
Respondents were asked about the extent to which South African retail companies needed to tailor their product and service offering for market requirements in Nigeria. The responses included limited tailoring and highly tailored to the market. The majority of the respondents identified that limited tailoring was made on product and service offerings towards market requirements in Nigeria.
Respondents C and D stated that their companies were highly tailored to the market, while respondents B, E and A stated that their companies had limited tailoring
58 towards their product and service offering in Nigeria. The table below provides the summary of the result.
Categories Frequencies Limited Tailoring 3 Highly Tailored to the Market 2
4.2.1.8 Question 8: What Human Resource policies were put in place for recruitment, deployment, training and development of local talent?
This question was asked in order to identify the human resource policies that were put in place for recruitment, deployment, training and development of local talent barriers that prevent South African retail companies from entering Nigerian markets. The responses included that the general management was run by an expatriate and that the companies train local talent for the future. Most of the respondents identified that their companies’ Nigerian offices were headed by an expat and that their companies had a policies to train local talent for the future. The table below provides the summary of the result.
Categories Frequencies General Management run by expat 5 Train local talent for the future 4
4.2.1.9 Question 9: What are best practices that can be used when entering Nigerian markets?
Respondents were asked about the best practices that can be used when entering Nigerian markets. The responses included market research, local knowledge, partnership with locals, legislative and regulatory compliance, understanding exchange controls/systems, working with a reputable bank, honesty, long term investment approach, inventory management, supply chain efficiency, packaging, pricing, company vision, aligning with local culture, recruiting the right talent, value add business, company culture and operating towards the right target market. A large number of respondents identified that partnership with locals was the best practice that can be used when entering Nigerian markets. The table in the overleaf provides the summary of the results.
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Categories Frequencies Market research 2 Local Knowledge 1 Partnership with Locals 3 Legislative and Regulatory Compliance 1 Understanding Exchange controls/systems 2 Working with a Reputable Bank 1 Honesty 1 Long term approach 2 Inventory management 1 Supply Chain efficiency 1 Packaging 1 Pricing 1 Company Vision 1 Align with local Culture 1 Recruiting the right talent 1 Value add business 1 Company culture 1 Operating towards the right Target market 1
4.2.1.10 Question 10: How can these best practices be used to develop a strategy framework for entering Nigerian retail markets?
This final question of the interview asked how the above best practice(s) could be used to develop a strategy framework for entering Nigerian retail markets. The responses included market entry flexibility, developing governmental agencies for easier market entry, using a centralised company structure (head office) and the adaptation to the market to build controls and policies. The majority of the respondents identified that there is a need to develop governmental agencies for easier market entry and that companies need to adapt to the market to build controls and policies. The table below provides the summary of the result.
Categories Frequencies Market entry Flexibility 1 Developing governmental agencies for easier market entry 2 Using a centralised company structure (Head Office) 1 Adaptation to the market to build controls and policies 2
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4.3 Quantitative results
The quantitative research results will be reviewed through the discussion of the descriptive, reliability assessment and inferential statistical analysis. Firstly, the section will describe the demographic aspects of the participants in pie charts. A total of 146 questionnaires were sent by South African retail employees whose companies have an operation in Nigeria (the template for the questionnaire is available in the appendix section). The questionnaire was conducted through a purposive sample of retail employees in the South African retail industry to obtain diverse responses from retail employees on the phenomenon. The respondent to this questionnaire ranged from senior employees to entry level employees.
The questionnaires were distributed among employees via an online survey tool called Google Forms. The questionnaire was shared via a link which was sent by e- mail to an initial total number of 164 contacts across the various South African retail companies. Employees were also given the opportunity to forward the email to other colleagues in the industry, to make up for potential non-responses. Although there was little control of how many people received the questionnaire, the survey tool recorded the number of respondents who participated in the questionnaire.
In total of150 respondents submitted the questionnaire. The data was then exported from Google Form into SPSS for analysis. Fourteen questionnaires were not returned by the respondents, while four questionnaires were incomplete, missing multiple responses. These questionnaires were omitted and not included in the analysis. A principal component analysis was conducted through SPSS in order to reduce and group the variables in the data into factors. The quantitative data was then analysed through descriptive statistics.
4.3.1 Reliability tests
A reliability analysis measures the overall consistency of the items (questions), which is used to define a scale. By using the reliability analysis, the study determines the extent to which the questions in the questionnaire are related to each other. The reliability analysis attempts to answer the following question: “Does the questionnaire measure entry strategies used by South African retail companies entering Nigerian
61 markets in a useful way?” Therefore, as part of the quantitative analysis of the research, the study attempted to ensure the validity and reliability of data received.
One of the most popular reliability tests used today is the Cronbach's, alpha which determines the internal consistency or average correlation of items in a questionnaire. Cronbach’s is the average correlation between all items corrected for the number for the number of items (Blumberg, Cooper, and Schindler, 2011:429) The results for the reliability of the study were conducted through the use of the Cronbach’s alpha test. Table 4.1 below describes a range of seven items that were sampled as part of the reliability of the research:
Table 4.1: Cronbach's Alpha test
Reliability Statistics
Cronbach's Alpha Based on Cronbach's Alpha Standardized Items N of Items
.774 .801 7
If the figure is higher than 0.7, the data can be considered reliable and if it is less than 0.7, the data is less reliable. According to the table, results the figure is 0.801 which is higher than 0.7 demonstrating that it is reliable. The above results have shown that similar research results could be obtained if the test was to be repeated. As a result, the researcher could continue with the rest of the process because the reliability and validity of the data was confirmed by Cronbach’s alpha (Pallant, 2007:66).
A frequency distribution was also used as part of the data analysis. The frequency distribution showed how the data was distributed over the various categories, and was measured with a five-point Likert scale where the respondents indicated their level of agreement with a series of statements from part 3 to part 5 in the questionnaire. The categories for these items are 1 (Not all influential) and 5 (Extremely influential). Table 4.2 below is an example of a frequency distribution conducted for the best practiced SA retail company in Nigeria:
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Table 4.2: Frequency distribution for the best practiced SA retail company in Nigeria
Not all Slightly Somewhat Very Extremely influential influential influential influential influential Total C27.1 Count 0 0 0 21 122 143 Row N % 0.0% 0.0% 0.0% 14.7% 85.3% 100.0% C27.2 Count 123 18 0 0 0 141 Row N % 87.2% 12.8% 0.0% 0.0% 0.0% 100.0% C27.3 Count 0 0 0 118 23 141 Row N % 0.0% 0.0% 0.0% 83.7% 16.3% 100.0% C27.4 Count 116 8 18 0 0 142 Row N % 81.7% 5.6% 12.7% 0.0% 0.0% 100.0% C27.5 Count 41 94 7 0 1 143 Row N % 28.7% 65.7% 4.9% 0.0% 0.7% 100.0% C27.6 Count 0 11 47 87 0 145 Row N % 0.0% 7.6% 32.4% 60.0% 0.0% 100.0% C27.7 Count 0 0 31 96 13 140 Row N % 0.0% 0.0% 22.1% 68.6% 9.3% 100.0%
4.3.2 Part A: Demographic information
The biographical information gained from the questionnaire was not directly linked to the objectives of the study. However it provided clarity and a sense of reliability from the results. Below are the statistics discussed as part of the demographic information:
Age of respondents; Gender of respondents; Level of education; Current Position in the Company; and Number of years in operation
4.3.2.1 Age
Respondents in the questionnaire were asked to indicate their age in order to identify the range of ages amongst the respondents who participated in the study. Figure 4.1 below will illustrate the age of respondents who participate in the study.
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Figure 4.1: Age of respondents
100 90 80 18-30 70 30-40 60 50 40-50 40 50-60 30 above 60 20 10 0 18-30 30-40 40-50 50-60 above 60
The above figure illustrates that the age of the respondents. About 35 of total respondents were in the age group of 18-30, 95 respondents were in the age group of 30-40, six respondents were in the age group of 40-50, four respondents were in the age group of 50-60 and six respondents were in the age group above 60. This showed that the majority of the respondents were in the age group of 30-40 years of age.
4.3.2.2 Gender
Respondents in the questionnaire were asked to indicate their gender in order to identify the number of males and females who participated in the study. Figure 4.2 below will illustrate the age of respondents who participate in the study.
Figure 4.2: Gender of respondents
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The above figure illustrates that the age of the respondents. Of total respondents, 92 were male and 54 were female. This showed that males formed were the majority of respondents in this questionnaire
4.3.2.3 Level of education
Respondents in the questionnaire were asked to indicate their level of education in order to identify the number of qualified participants in the study. Figure 4.3 below will illustrate the highest qualification of the respondents who participate in the study.
Figure 4.3: Level of education of respondents
PHD
Master’s degree Did not complete high school
Honours degree High school degree/equivalent Diploma Bachelors degree Bachelors degree Diploma Honours degree Master’s degree High school degree/equivalent PHD Did not complete high school
0 10 20 30 40 50 60
Eleven of the respondents who participated in the questionnaire stated that they did not complete high school, 15 of the respondents said they have a high school degree, whilst 55 have a diploma, 41 a bachelor degree, 18 an honours degree, five a master’s degree and one a PhD. This showed that the majority of respondents in this questionnaire held Diplomas.
4.3.2.4 Current position
Respondents were asked to indicate their current position in their respective companies. Figure 4.4 below will illustrate the current position of the respondents who participated in the study.
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Figure 4.4: Current position in the company
The majority of the respondents indicated that their current position was supply line co-ordinators, which accounted for 12 respondents in the questionnaire. Below is a list of the current positions that respondents had at their various companies; brand manager (1), business analyst (6), business development manager (3), custom controller (2), demand planning manager (5), divisional loss control (1), divisional manager (6), divisional training manager (1), freight services coordinator (6), HR manager (1), marketing communications officer (5), marketing manager (1), marketing projects manager (1), new business manager (1), operations manager (7), personnel manager 1, planning manager (4),property manager (6), quality assurance manager (1), quality control (11), real estate director (1), regional admin manager (1), research and development director (1), research and development manager (4), retail head (1), sales consultant (10), sales representative (9), scrum master (2), senior operations manager (1), supply line co-ordinator (12), supply line manager (4), test analyst (1), test team manager (1), trainee accountant (5), trainee assistant manager (3), trainee buyer (6) transport logistics manager (7), warehouse manager (6) and warehouse team lead (1).
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4.3.2.5 Numbers of years in operation
Respondents in the questionnaire were asked to indicate the number of years their company was in operation. The results are presented in figure 4.5 below.
Figure 4.5: Number of years in operation
The majority of the companies have been in operation for about 50 and above years, representing 121of the respondents. The companies of 22 of the respondents have been in operation for 21 and 30 years, followed by the companies of two of the respondents who have been in operation for at least 31 to 49 years. One respondent’s company had been in operation for 1-10 years and no respondents worked for a company that has been in operation for 11-20 years.
4.3.3 Market entry statistics
The following statistics relate to market entry variables for South African companies in Nigeria:
External barriers to business growth; Market Entry Modes; Competitive Factors; Operational Challenges; and Best Practices.
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The mean, standard deviation and the rating scale of 1-5 were also used to identify the factors affecting South African retail companies in Nigeria. According to Morgan, Watamaniuk, and McKee (2000:2341), “the greater an item mean, the greater its importance”. The standard deviation will provide the measurement of how far the responses where from the question and how they varied from the mean. Below is a table that illustrates how the SPSS analysis was conducted based on the above mentioned metrics:
Table 4.3: SPSS means and standard deviation
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
C27.1 143 4 5 4.85 .355 C27.2 141 1 2 1.13 .335 C27.3 141 4 5 4.16 .371 C27.4 142 1 3 1.31 .686 C27.5 143 1 5 1.78 .595 C27.6 145 2 4 3.52 .636 C27.7 140 3 5 3.87 .548 Valid N (listwise) 120
4.3.4 Part B: External barriers to business growth
Respondents of this questionnaire were asked to indicate the economic-based barriers, political-related barriers, social-related barriers, industry-based barriers and environmental-based barriers for South African Retail Companies in Nigeria.
4.3.4.1 Economic-based barriers
Table 4.4, below presented the mean scores, the standard deviation as well as the rating scale of the economic-based barriers for South African retail companies in Nigeria.
Table 4.4: Economic-based barriers affecting SA retail companies
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Description of Yes No N Standard Mean Not a Slight Moderate Strong Extremely items deviation barrier barrier barrier barrier strong barrier Economic 86.9% 13.1% 132 .387 4.18 0.0% 0.0% 0.0% 81.8% 18.2% recession Inflation rate 95.7% 4.3% 130 .745 3.76 6.2% 0.0% 5.4% 88.5% 0.0% Interest rate 95.0% 5.0% 130 .671 2.68 6.2% 24.6% 63.8% 5.4% 0.0% Taxes and 79.7% 20.3% 138 .414 4.22 0.0% 0.0% 0.0% 78.3% 21.7% tariffs Foreign 96.4% 3.6% 137 .483 4.64 0.0% 0.0% 0.0% 36.5% 63.5% exchange rates Price fixing 26.4% 73.6% 139 .817 2.36 16.5% 36.0% 42.4% 5.0% 0.0% Lack of access 10.7% 89.3% 134 1.381 3.16 24.6% 0.0% 24.6% 36.6% 14.2% to finance Low disposable 95.6% 4.4% 138 .560 3.66 0.0% 4.3% 25.4% 70.3% 0.0% income Lack of 89.9% 10.1% 136 .620 4.46 0.0% 2.2% 0.0% 47.1% 50.7% infrastructure
As shown in table 4.4, foreign exchange rates (mean=4.64) were the most important economic-based barrier faced by South African retail companies in Nigeria. This was followed by lack of infrastructure (mean=4.46) and taxes and tariffs (mean=4.42). The lowest mean came from price fixing (mean=2.36) and interest rate (mean=2.68).
4.3.4.2 Political-related barriers
Table 4.5 below presented the mean scores, the standard deviation as well as the rating scale of the political-related barriers for South African retail companies in Nigeria.
Table 4.5: Political-related barriers affecting SA retail companies
Description of items Yes No N Standard Mean Not a Slight Moderat Strong Extremel deviation barrier barrier e barrier barrier y strong barrier Political instability 32.2% 67.8% 140 .384 4.1 0.0% 0.0% 0.0% 82.1 17.9% 8 % Labour legislation 7.1% 92.9% 141 .502 1.5 48.9% 51.1% 0.0% 0.0% 0.0% 1 Government 90.8% 9.2% 143 .348 4.8 0.0% 0.0% 0.0% 14.0 86.0% regulations 6 % Consumer 8.7% 91.3% 133 .585 4.5 0.8% 0.0% 0.0% 43.6 55.6% protection 3 % Disruptive Union 90.8% 9.2% 142 .500 4.4 0.0% 0.0% 0.0% 54.2 45.8% action 6 %
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As evident in table 4.5, government regulations (mean=4.86) were the most important political-related barrier that faced South African retail companies in Nigeria. This was followed by consumer protection (mean=4.53) and disruptive Union action (mean=4.46). The lowest mean came from labour legislation (mean=1.51) and political instability (mean=4.18).
4.3.4.3 Social-related barriers
Table 4.6 below presents the mean scores, the standard deviation as well as the rating scale of the social-related barriers for South African retail companies in Nigeria.
Table 4.6: Social-related barriers affecting SA retail companies
Description of Yes No N Standard Mean Not a Slight Moderate Strong Extremely items deviation barrier barrier barrier barrier strong barrier Levels of 47.2% 52.8% 143 .534 4.41 0.0% 0.7% 0.0% 57.3% 42.0% unemployment Levels of 3.5% 96.5% 137 .840 2.32 24.1% 19.7% 56.2% 0.0% 0.0% illiteracy Levels of 97.2% 2.8% 143 1.277 3.53 0.0% 38.5% 0.0% 31.5% 30.1% corruption Shortage of 79.9% 20.1% 140 .500 4.54 0.0% 0.0% 0.0% 45.7% 54.3% skilled labour Prevalence of 3.5% 96.5% 142 .461 1.30 69.7% 30.3% 0.0% 0.0% 0.0% HIV & AIDS
As represented in table 4.6, the results state that the shortage of skilled labour (mean=4.54) was the most important social-related barrier that faced South African retail companies in Nigeria. This was followed by levels of unemployment (mean=4.41) and levels of corruption (mean=3.53). The lowest mean came from prevalence of HIV and AIDS (mean=1.30) and levels of illiteracy (mean=2.32).
4.3.4.4 Industry-based barriers
Table 4.7 below presents the mean scores, the standard deviation as well as the rating scale of the industry-based barriers for South African retail companies in Nigeria.
Table 4.7: Industry-based barriers affecting SA retail companies
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Description of Yes No N Standard Mean Not a Slight Moderate Strong Extremely items deviation barrier barrier barrier barrier strong barrier Intense rivalry 11.6% 88.4% 144 .432 1.10 95.1% 0.0% 4.9% 0.0% 0.0% Threat of new 11.3% 88.7% 143 1.000 2.39 32.9% 0.0% 62.2% 4.9% 0.0% entrants in the market High bargaining 56.4% 43.6% 145 .696 1.96 26.2% 51.7 22.1% 0.0% 0.0% power of the supplier % High bargaining 10.1% 89.9% 146 .485 1.26 75.3% 24.0 0.0% 0.7% 0.0% power of the buyer % Threat of 13.2% 86.8% 144 .738 1.53 61.1% 24.3 14.6% 0.0% 0.0% substitute of product or % service Goods return 12.7% 87.3% 144 .495 1.42 58.3% 41.7 0.0% 0.0% 0.0% policy %
Evident in table 4.7, the threat of new entrants in the market (mean=2.39) was the most important industry-based barrier that faced South African retail companies in Nigeria. This was followed by high bargaining power of the supplier (mean=1.96) and threat of substitute of product or service (mean=1.53). The lowest mean came from intense rivalry (mean=1.10) and High bargaining power of the buyer (mean=1.96).
4.3.4.5 Environmental-based barriers
Table 4.8 below presented the mean scores, the standard deviation as well as the rating scale of the environmental-based barriers for SA retail companies in Nigeria.
Table 4.8: Environmental-based barriers affecting SA retail companies
Description Yes No N Mean Standard Not a Slight Moderate Strong Extremely of items deviation barrier barrier barrier barrier strong barrier Climate 92.5% 7.5% 136 4.00 .000 0.0% 0.0% 0.0% 100.0 0.0% Change % Water 95.2% 4.8% 139 3.17 1.532 13.7% 36.7 0.0% 18.0% 31.7% Security % Waste 73.3% 26.7% 141 1.53 .501 46.8% 53.2 0.0% 0.0% 0.0% Management % Food 79.5% 20.5% 138 4.35 .789 0.7% 5.1% 0.0% 47.1% 47.1% Security Energy 88.4% 11.6% 137 4.86 .347 0.0% 0.0% 0.0% 13.9% 86.1% Management
Table 4.8 shows that energy management (mean=4.86) was the most important environmental-based barrier that faced South African retail companies in Nigeria. This was followed by food security (mean=4.35) and climate change (mean=4.00).
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The lowest mean came from waste management (mean=1.53) and water security (mean=3.17).
4.3.5 Part C: South African retail companies expansion
Respondents of this questionnaire were asked to indicate the market entry modes, market entry modes and the level of initial capital investment, supporting data on modes of market entry, mode of market entry factors and the trade regulations and standards impact on mode of market entry for South African retail companies in Nigeria.
4.3.5.1 Market entry modes
Table 4.9 below presents the mean scores, the standard deviation as well as the rating scale of the market entry modes for South African retail companies in Nigeria.
Table 4.9: Market entry modes used by SA retail companies
Description Yes No N Standard Mean Not a Slight Moderate Strong Extremely of items deviation barrier barrier barrier barrier strong barrier Mergers & 1.4% 98.6% 143 .592 1.21 86.7% 5.6% 7.7% 0.0% 0.0% acquisitions Joint 90.1% 9.9% 142 .405 1.20 79.6% 20.4% 0.0% 0.0% 0.0% ventures Licencing 17.4% 82.6% 139 1.000 2.08 46.0% 0.0% 54.0% 0.0% 0.0% Franchising 88.8% 11.2% 143 .502 1.49 51.0% 49.0% 0.0% 0.0% 0.0% Niche 2.1% 97.9% 143 1.003 2.03 48.3% 0.0% 51.7% 0.0% 0.0% marketing Wholly 100.0 0.0% 143 .567 4.50 0.7% 0.0% 0.7% 46.2 52.4% owned % % subsidiaries Diversificati 86.5% 13.5% 143 .920 2.40 30.1% 0.0% 69.9% 0.0% 0.0% on Cost 89.9% 10.1% 142 .257 1.93 7.0% 93.0% 0.0% 0.0% 0.0% Leadership
As represented in table 4.9, Wholly Owned Subsidiaries (mean=4.50) was the most used market entry modes by South African retail companies in Nigeria. This was followed by Diversification (mean=2.40) and Licencing (Mean=2.08). The lowest mean came from Joint Ventures (mean=1.20) and Mergers and Acquisitions (mean=1.21).
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4.3.5.2 Market entry modes and the level of initial capital investment
Table 4.10 below presents the mean scores, the standard deviation as well as the rating scale of the market entry modes and the level of initial capital investment for South African retail companies in Nigeria.
Table 4.10: Market entry modes and the level of initial capital investment
Description of items N Standard Mean Low Medium High deviation Mergers & acquisitions 145 .287 2.91 0.0% 9.0% 91.0% Joint ventures 136 .370 1.84 16.2% 83.8% 0.0% Licencing 138 .303 1.10 89.9% 10.1% 0.0% Franchising 141 .218 1.05 95.0% 5.0% 0.0% Wholly owned subsidiaries 140 .085 2.99 0.0% 0.7% 99.3%
As represented in table 4.10, Wholly Owned Subsidiaries (mean =2.99) was the main market entry mode, with the highest level of initial capital investment needed by South African retail companies in Nigeria. This was followed by Mergers and Acquisitions (mean =2.91) and Joint Ventures (Mean=1.84). The lowest means came from Franchising (Mean=1.05) and Licencing (Mean=1.10).
4.3.5.3 Supporting data on modes of market entry
Table 4.11 below presents the mean scores, the standard deviation as well as the rating scale of the supporting data on modes of market entry for South African retail companies in Nigeria.
Table 4.11: Supporting data on modes of market entry
Description of items N Standard Mean Not a Slight Moderate Strong Extremely deviation barrier barrier barrier barrier strong barrier GDP Growth ( gross domestic 141 .556 4.23 0.0% 0.0% 6.4% 63.8% 29.8% product) PPP (Purchasing Power Parity) 143 .607 1.60 46.2% 47.6% 6.3% 0.0% 0.0% Unemployment Rate 141 .359 3.00 0.0% 6.4% 87.2% 6.4% 0.0% Retail Industry sales 143 .616 3.97 0.0% 0.0% 20.3% 62.2% 17.5% Expenditure levels 144 .736 4.10 0.0% 0.0% 22.2% 45.1% 32.6% Population Growth 140 .254 4.98 0.0% 0.7% 0.0% 0.0% 99.3% Real exchange rate 136 .376 4.15 0.0% 0.0% 0.7% 83.8% 15.4% Limited data 138 .306 4.96 0.0% 0.7% 0.7% 0.0% 98.6%
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As shown in table 4.11, growth (mean=4.98) was the most important supporting data on modes of market entry for South African retail companies in Nigeria. This was followed by limited data (mean=4.96) and GDP growth (mean=4.23). The lowest mean came from PPP (purchasing power parity) (mean=1.60) and unemployment rate (Mean=3.00).
4.3.5.4 Mode of market entry factors
Table 4.12 below presents the mean scores, the standard deviation as well as the rating scale of the mode of market entry factors for SA Companies in Nigeria.
Table 4.12: Mode of market entry factors
Description of items N Standard Mean Not a Slight Moderate Strong Extremely deviation barrier barrier barrier barrier strong barrier Upfront investment(financial and 137 .501 4.47 0.0% 0.0% 0.0% 52.6% 47.4% managerial) Speed of entry 136 .363 3.85 0.0% 0.0% 15.4% 84.6% 0.0% Market penetration 141 .500 4.46 0.0% 0.0% 0.0% 53.9% 46.1% Control of Market (customer 138 .424 4.77 0.0% 0.0% 0.0% 23.2% 76.8% Knowledge) Political risk exposure 139 .253 4.04 0.0% 0.0% 1.4% 93.5% 5.0% Technological leakage(information 141 .815 2.62 0.0% 58.9% 19.9% 21.3% 0.0% asymmetry) Managerial complexity 143 .495 4.42 0.0% 0.0% 0.0% 58.0% 42.0% Return on Investment (ROI) 143 .621 3.31 0.0% 8.4% 51.7% 39.9% 0.0% Timing and long term vision 146 .410 2.21 0.0% 21.2% 0.0% 0.0% 78.8%
As represented in table 4.12, the control of market (customer knowledge) (mean=4.77) was the most important market entry mode factor faced by South African retail companies in Nigeria. This was followed by upfront investment (financial and managerial) (mean=4.47) and managerial complexity (mean=4.42). The lowest means came from timing and long term vision (mean=2.21) and technological leakage (information asymmetry) (mean=2.21).
4.3.5.5 Trade regulations and standards
Table 4.13 below presented the mean scores, the standard deviation as well as the rating scale of the trade regulations and standards impact on mode of market entry for South African retail companies in Nigeria.
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Table 4.13: Trade regulations and standards impact on mode of market entry
Description of items N Standard Mean Not a Slight Moderate Strong Extremely deviation barrier barrier barrier barrier strong barrier Import Tariffs 145 .371 3.09 0.0% 2.8% 85.5% 11.7% 0.0% Trade Barriers 144 .782 3.74 0.0% 0.0% 46.5% 32.6% 20.8% Import Requirements and 145 .314 4.89 0.0% 0.0% 0.0% 11.0% 89.0% Documentation Nigerian import Controls 144 .766 4.03 0.0% 0.0% 27.8% 41.7% 30.6% Labelling and Marking Requirements Prohibited and Restricted Imports 146 .313 4.89 0.0% 0.0% 0.0% 11.0% 89.0% Customs Regulations and Contact 145 .493 4.59 0.0% 0.0% 0.0% 40.7% 59.3% Information Trade Agreements 146 .415 3.22 0.0% 0.0% 78.1% 21.9% 0.0% Merchandise Standards 144 .532 3.73 0.0% 4.2% 18.8% 77.1% 0.0%
As shown in table 4.13, prohibited and restricted imports (mean=4.89) was the most important trade regulation and standard that impacted the mode of market entry in Nigeria. This was followed by import requirements and documentation (mean=4.89) and customs regulations and contact Information (mean=4.59). The lowest mean came from import tariffs (mean=3.09) and trade agreements (mean=3.22).
4.3.6 Part D: Competitive factors
Respondents of this questionnaire were asked to indicate competitive factors, local employees/partners role in the company’s competitiveness, country specific advantages and the level of education/training for South African retail companies in Nigeria.
4.3.6.1 Competitive factors
Table 4.14 below presented the mean scores, the standard deviation as well as the rating scale of the competitive factors for South African retail companies in Nigeria.
Table 4.14: Competitiveness factors
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Description of items N Standard Mean Not all Slightly Somewhat Very Extremely deviation influential influential influential influential influential Diverse product range 145 .501 4.52 0.0% 0.0% 0.0% 48.3% 51.7% Low pricing of products 146 .479 4.07 0.0% 0.0% 8.2% 76.7% 15.1% Discount initiatives 144 .408 4.79 0.0% 0.0% 0.0% 20.8% 79.2% Location of outlets 144 .513 4.45 0.0% 0.0% 0.7% 53.5% 45.8% Effective promotional strategies 138 .346 4.14 0.0% 0.0% 0.0% 86.2% 13.8% Customer relationships 141 .245 2.94 0.0% 6.4% 93.6% 0.0% 0.0% Well-developed infrastructure 141 .445 4.27 0.0% 0.0% 0.0% 73.0% 27.0% Brand awareness/preference 145 .500 4.54 0.0% 0.0% 0.0% 46.2% 53.8% Availability of public transport 142 .652 1.76 35.9% 52.1% 12.0% 0.0% 0.0% Use of advanced technologies 145 .553 2.83 8.3% 0.0% 91.7% 0.0% 0.0% Online purchasing 143 .687 3.02 0.0% 22.4% 53.1% 24.5% 0.0%
As evident in table 4.14, the discount initiatives (mean =4.79) was the competitiveness factor that South African retail companies in Nigeria. This was followed by brand awareness/preference (mean=4.54) and location of outlets (mean=4.45). The lowest mean came from availability of public transport (mean=1.76) and use of advanced technologies (mean=2.83).
4.3.6.2 Local employees/partners
Table 4.15 below presents the mean scores, the standard deviation as well as the rating scale of the local employees/partners role in the company’s competitiveness for South African retail companies in Nigeria.
Table 4.15: Local employees/partners role in the company’s competitiveness
Description of items N Standard Mean Not all Slightly Somewhat Very Extremely deviation influential influential influential influential influential Language Barrier 142 .847 4.45 0.0% 0.0% 23.2% 8.5% 68.3% Local Stakeholders management 142 .501 4.48 0.0% 0.0% 0.0% 52.1% 47.9% Marketing 144 .833 2.72 0.0% 47.9% 37.5% 9.7% 4.9% Cost Effectiveness 143 .439 4.26 0.0% 0.0% 0.0% 74.1% 25.9% Network base 146 .483 4.64 0.0% 0.0% 0.0% 36.3% 63.7% Knowledge of the local 142 .461 4.70 0.0% 0.0% 0.0% 30.3% 69.7% environment Lobbying 143 1.027 3.21 0.0% 28.7% 37.1% 18.9% 15.4% Operational Effectiveness 142 .451 4.72 0.0% 0.0% 0.0% 28.2% 71.8% Localisation 145 .527 3.23 0.0% 0.0% 81.4% 13.8% 4.8% Culture 143 .466 4.31 0.0% 0.0% 0.0% 68.5% 31.5% Government Regulations 144 .468 4.68 0.0% 0.0% 0.0% 31.9% 68.1%
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As shown in table 4.15, operational effectiveness (mean=4.72) was mostly contributed by the local employees/partners role in the company’s competitiveness in Nigeria. This was followed by knowledge of the local environment (mean=4.70) and government regulations (mean=4.68). The lowest mean came from marketing (mean=2.72) and localisation (mean=3.23).
4.3.6.3 Country specific advantages
Table 4.16 below presents the mean scores, the standard deviation as well as the rating scale of the country specific advantages for South African retail companies in Nigeria.
Table 4.16: Country specific advantages
Description of items N Standard Mean Not at all Low Moderately Important Extremely deviation important importance important important GDP growth 144 .520 4.17 0.0% 0.0% 6.3% 70.1% 23.6% Market size 144 .307 4.90 0.0% 0.0% 0.0% 10.4% 89.6% private consumption 145 .428 4.79 0.0% 0.0% 0.7% 20.0% 79.3% expenditure Retail industry development 145 .276 4.92 0.0% 0.0% 0.0% 8.3% 91.7% Brand awareness 146 .338 4.87 0.0% 0.0% 0.0% 13.0% 87.0% Growing Middle class 144 .243 4.94 0.0% 0.0% 0.0% 6.3% 93.8% Returning diaspora 141 .471 2.33 0.0% 67.4% 32.6% 0.0% 0.0% Housing Development 144 .815 4.35 0.0% 0.0% 21.5% 21.5% 56.9%
As represented in table 4.16, the growing middle class (mean=4.94) was the country specific advantage that South African retail companies faced in Nigeria. This was followed by retail industry development (mean =4.92) and market size (mean=4.90). The lowest mean came from returning diaspora (mean=2.33) and GDP growth (mean=4.17).
4.3.6.4 Level of education/training
Table 4.17 below presents the mean scores, the standard deviation as well as the rating scale of the level of education/training for South African retail companies in Nigeria.
Table 4.17: Level of education/training
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Description of items N Standard Mean Not all Slightly Somewhat Very Extremely deviation influential influential influential influential influential HR management 142 .752 2.96 0.0% 30.3% 43.7% 26.1% 0.0% Corporate Communication 143 .716 4.22 0.0% 0.0% 16.8% 44.1% 39.2% Technology and innovation 139 .642 4.09 0.0% 0.0% 16.5% 58.3% 25.2% Procurement 143 .501 4.52 0.0% 0.0% 0.0% 48.3% 51.7% Inbound Logistics 144 .484 4.63 0.0% 0.0% 0.0% 36.8% 63.2% Production Operations 145 .470 4.09 0.0% 0.0% 6.9% 77.2% 15.9% Outbound Logistics 145 .254 4.93 0.0% 0.0% 0.0% 6.9% 93.1% Marketing 145 .706 4.45 0.0% 0.0% 12.4% 30.3% 57.2% Service 143 .586 3.69 2.1% 0.0% 25.2% 72.7% 0.0%
As illustrated in table 4.17, the outbound logistics (mean=4.93) was the level of education/training that South African retail companies faced in Nigeria. This was followed by inbound logistics (mean=4.63) and marketing (mean=4.45). The lowest mean came from human resources (HR) management (mean=2.96) and service (mean=3.69).
4.3.7 Part E: Operational challenges
Respondents of this questionnaire were asked to indicate operational challenges, procurement procedure challenges, inventory management challenges, technology and innovation challenges, distribution processes challenges, product challenges and in-store challenges for South African retail companies in Nigeria.
4.3.7.1 Operational challenges
Table 4.18 below presented the mean scores, the standard deviation as well as the rating scale of the operational challenges for South African retail companies in Nigeria.
Table 4.18: Operational challenges
Description of items N Standard Mean Not at all Low Moderately Important Extremely deviation important importance important important Energy and power supply 143 .307 4.90 0.0% 0.0% 0.0% 10.5% 89.5% Road& transport network 138 .501 4.53 0.0% 0.0% 0.0% 47.1% 52.9% Effective banking services 145 .588 4.44 0.0% 0.0% 4.8% 46.2% 49.0% Workable computer systems 141 .501 2.53 0.0% 46.8% 53.2% 0.0% 0.0% Government bureaucracy 140 .569 4.38 0.0% 0.0% 4.3% 53.6% 42.1% Mobile network services 145 .441 3.26 0.0% 0.0% 73.8% 26.2% 0.0% Access to promotional media 144 .642 4.31 0.0% 0.0% 9.7% 49.3% 41.0%
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As given in table 4.18, the results state that the energy and power supply (mean=4.90) was the highest most operational challenge that South African retail companies faced in Nigeria. This was followed by road and transport network (mean=4.53) and government bureaucracy (mean=4.38). The lowest mean came from workable computer systems (mean=2.53) and mobile network services (mean=3.26).
4.3.7.2 Procurement procedure challenges
Table 4.19 below presents the mean scores, the standard deviation as well as the rating scale of the procurement procedure challenges for South African retail companies in Nigeria.
Table 4.19: Procurement procedure challenges
Description of items N Standard Mean Not at all Low Moderately Important Extremely deviation important importance important important Corruption 143 .427 4.76 0.0% 0.0% 0.0% 23.8% 76.2% Suppliers 146 .484 4.37 0.0% 0.0% 0.0% 63.0% 37.0% Raw materials cost 141 .491 4.60 0.0% 0.0% 0.0% 39.7% 60.3% Labour wages 141 .762 3.49 0.0% 0.0% 67.4% 16.3% 16.3% Fuel price volatility 142 .501 4.48 0.0% 0.0% 0.0% 52.1% 47.9% Quality assurance programmes 142 .334 4.87 0.0% 0.0% 0.0% 12.7% 87.3% Planning/scheduling with vendors 144 .165 4.97 0.0% 0.0% 0.0% 2.8% 97.2% Ethical sourcing 137 .768 2.12 24.1% 40.1% 35.8% 0.0% 0.0%
As represented in table 4.19, planning/scheduling with vendors (mean=4.97) was the highest procurement procedure challenge that South African retail companies faced in Nigeria. This was followed by quality assurance programmes (mean=4.87) and corruption (mean=4.76). The lowest mean came from ethical sourcing (mean=2.12) and labour wages (Mean=3.49).
4.3.7.3 Inventory management challenges
Table 4.20 below presents the mean scores, the standard deviation as well as the rating scale of the inventory management challenges for South African retail companies in Nigeria.
Table 4.20: Inventory management challenges
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Description of items N Standard Mean Not at all Low Moderately Important Extremely deviation important importance important important Order intake systems 144 .645 4.74 0.0% 0.0% 11.1% 3.5% 85.4% Product handling 139 .391 4.81 0.0% 0.0% 0.0% 18.7% 81.3% Inventory turns 129 .316 2.96 0.0% 7.0% 89.9% 3.1% 0.0% Port delays 138 .303 4.90 0.0% 0.0% 0.0% 10.1% 89.9% Optimizing Distribution 130 .488 4.38 0.0% 0.0% 0.0% 61.5% 38.5% Networks Storage facilities 139 .379 4.83 0.0% 0.0% 0.0% 17.3% 82.7% Electricity shortage 140 .186 4.96 0.0% 0.0% 0.0% 3.6% 96.4% Security 140 .310 4.89 0.0% 0.0% 0.0% 10.7% 89.3% Warehouse floor layout 141 .487 3.18 0.0% 0.0% 85.8% 9.9% 4.3%
As represented in table 4.20, the results show that the electricity shortage (mean=4.96) was the highest inventory management challenge that South African retail companies faced in Nigeria. This was followed by port delays (mean=4.90) and security (mean=4.89). The lowest mean came from inventory turns (Mean=2.96) and warehouse floor layout (mean=3.18).
4.3.7.4 Technology and innovation challenges
Table 4.21 below presents the mean scores, the standard deviation as well as the rating scale of the technology and innovation challenges for South African retail companies in Nigeria.
Table 4.21: Technology and innovation challenges
Description of items N Standard Mean Not at all Low Moderately Important Extremely deviation important importance important important Omni channel management 142 .578 3.45 0.0% 4.2% 46.5% 49.3% 0.0% systems Mobile Payments platforms 139 .452 2.88 0.0% 16.5% 78.4% 5.0% 0.0% Internet Speed 142 .590 4.44 0.0% 0.0% 4.9% 45.8% 49.3% Credit Payment facilities 142 .830 1.54 67.6% 10.6% 21.8% 0.0% 0.0% E-commerce 144 .397 2.19 0.0% 80.6% 19.4% 0.0% 0.0% Digital Rewards Programmes 141 .476 1.34 66.0% 34.0% 0.0% 0.0% 0.0% Integrated information systems 142 .370 3.16 0.0% 0.0% 83.8% 16.2% 0.0% In-store analytics 145 .537 1.74 30.3% 64.8% 4.8% 0.0% 0.0%
As shown in table 4.21, internet speed (mean=4.44) was the highest technology and innovation challenge that South African retail companies faced in Nigeria. This was followed by Omni channel management systems (mean=3.45) and integrated
80 information systems (mean=3.16). The lowest mean came from digital rewards programmes (mean=1.34) and credit payment facilities (Mean=1.54).
4.3.7.5 Distribution processes challenges
Table 4.22 below presents the mean scores, the standard deviation as well as the rating scale of the distribution processes challenges for South African retail companies in Nigeria.
Table 4.22: Distribution processes challenges
Description of items N Standard Mean Not at all Low Moderately Important Extremely deviation important importance important important Managing Reverse Logistics 141 1.135 3.72 0.0% 22.0% 15.6% 30.5% 31.9% Inventory 140 .628 4.54 0.0% 0.0% 7.1% 32.1% 60.7% Storage facilities 144 .438 4.74 0.0% 0.0% 0.0% 25.7% 74.3% Transportation 142 .451 4.72 0.0% 0.0% 0.0% 28.2% 71.8% Communication 143 .517 4.01 0.0% 0.0% 12.6% 73.4% 14.0% Unitization and packaging 143 .692 4.30 0.0% 0.0% 13.3% 43.4% 43.4% Freshness of products 142 .552 4.44 0.0% 0.0% 2.8% 50.7% 46.5% Cross Docking 144 .603 4.15 0.0% 0.0% 11.8% 61.8% 26.4% Delivery time 142 .497 4.43 0.0% 0.0% 0.0% 57.0% 43.0%
As illustrated in table 4.22, storage facilities (mean=4.74) was the highest distribution process challenge that South African retail companies faced in Nigeria. This was followed by transportation (mean=4.72) and inventory (mean=4.54). The lowest mean came from managing reverse logistics (mean=3.72) and cross docking (mean=4.15).
4.3.7.6 Product challenges
Table 4.23 below presents the mean scores, the standard deviation as well as the rating scale of the product challenges for South African retail companies in Nigeria.
Table 4.23: Product challenges
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Description of items N Standard deviation Mean Not at all Low Moderately Important Extremely important importance important important Adaptation of 142 .501 4.52 0.0% 0.0% 0.0% 47.9% 52.1% marketing Product pricing 137 .425 4.23 0.0% 0.0% 0.0% 76.6% 23.4% Brand loyalty 145 .164 4.97 0.0% 0.0% 0.0% 2.8% 97.2% Localised products 143 .454 3.29 0.0% 0.0% 71.3% 28.7% 0.0% Product 144 .457 3.91 0.0% 0.0% 15.3% 78.5% 6.3% segmentation Promotions 136 .493 4.40 0.0% 0.0% 0.0% 59.6% 40.4% Distribution (place) 144 .787 4.24 0.0% 0.0% 21.5% 32.6% 45.8%
As shown in table 4.23, brand loyalty (mean=4.97) was the highest product challenge that South African retail companies faced in Nigeria. This was followed by adaptation of marketing (mean=4.52) and promotions (mean=4.40). The lowest mean came from localised products (mean=3.29) and product segmentation (mean=3.91).
4.3.7.7 In-store challenges
Table 4.24 below presents the mean scores, the standard deviation as well as the rating scale of the in-store challenges for South African retail companies in Nigeria.
Table 4.24: In-store challenges
Description of items N Standard Mean Not at all Low Moderately Important Extremely deviation important importance important important Poor reporting 143 .217 4.95 0.0% 0.0% 0.0% 4.9% 95.1% Business intelligence 144 .340 3.87 0.0% 0.0% 13.2% 86.8% 0.0% System flexibility 145 .502 4.51 0.0% 0.0% 0.0% 49.0% 51.0% Responsiveness to business 136 .488 4.67 0.0% 0.0% 0.7% 31.6% 67.6% requirements Stock figures (data accuracy) 138 .338 4.87 0.0% 0.0% 0.0% 13.0% 87.0% Forecasting system 142 .598 4.80 0.0% 0.0% 9.9% 0.0% 90.1% Wastage 141 .732 4.45 0.0% 0.0% 14.2% 26.2% 59.6%
As represented in table 4.24 t poor reporting (mean =4.95) was the highest In-store challenge that South African retail companies faced in Nigeria. This was followed by stock figures (data accuracy) (mean=4.87) and forecasting system (mean=4.80). The lowest mean came from business intelligence (mean=3.87) and responsiveness to business requirements (mean=4.67).
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4.3.8 Part F: Best practices for entering Nigerian markets
Respondents were asked to indicate whether or not the companies listed can be regarded as influential and best practiced in new entrant strategies and the best practice factors that may provide successful entry for South African retail companies in Nigerian
4.3.8.1 Best practiced South African retail companies
Table 4.25 below presents the mean scores, the standard deviation as well as the rating scale of the best practiced South African retail companies in Nigeria.
Table 4.25: Best practiced SA retail companies
Description of items N Standard Mean Not all Slightly Somewhat Very Extremely deviation influential influential influential influential influential Shoprite 143 .355 4.85 0.0% 0.0% 0.0% 14.7% 85.3% Woolworths 141 .335 1.13 87.2% 12.8% 0.0% 0.0% 0.0% Pep stores 141 .371 4.16 0.0% 0.0% 0.0% 83.7% 16.3% Truworths 142 .686 1.31 81.7% 5.6% 12.7% 0.0% 0.0% Foschini 143 .595 1.78 28.7% 65.7% 4.9% 0.0% 0.7% Mr Price 145 .636 3.52 0.0% 7.6% 32.4% 60.0% 0.0% Game 140 .548 3.87 0.0% 0.0% 22.1% 68.6% 9.3%
As given, in table 4.25, the results state that Shoprite (mean=4.85) was the best practiced South African retail company in Nigeria. This was followed by Game (mean=3.87) and Mr Price (Mean=3.52). The lowest mean came from Woolworths (mean=1.13) and Truworths (mean=1.31).
4.3.8.2 Best practice factors
Table 4.26 below presents the mean scores, the standard deviation as well as the rating scale of best practice factors for South African retail companies in Nigeria.
Table 4.26: Best practice factors
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Description of items N Standard Mean Not all Slightly Somewhat Very Extremely deviation influential influential influential influential influential Governance 144 .438 4.26 0.0% 0.0% 0.0% 74.3% 25.7% Supply Chain and 142 .000 5.00 0.0% 0.0% 0.0% 0.0% 100.0% ordering Centralised structure 144 .402 4.80 0.0% 0.0% 0.0% 20.1% 79.9% First mover 145 .339 4.87 0.0% 0.0% 0.0% 13.1% 86.9% advantage Expat deployment 142 .626 2.82 0.0% 30.3% 57.7% 12.0% 0.0% Training/development 144 .386 4.82 0.0% 0.0% 0.0% 18.1% 81.9% Ownership and 135 .371 4.84 0.0% 0.0% 0.0% 16.3% 83.7% Control Research and 145 .367 4.84 0.0% 0.0% 0.0% 15.9% 84.1% Development Aggressive growth 146 .533 3.31 0.0% 0.0% 72.6% 24.0% 3.4% Policy Buyer-Supplier 143 .498 4.44 0.0% 0.0% 0.0% 55.9% 44.1% Relationships Cost Leadership 144 .491 4.40 0.0% 0.0% 0.0% 60.4% 39.6% Differentiation 144 .230 4.94 0.0% 0.0% 0.0% 5.6% 94.4%
As represented in table 4.26, the results state that the supply chain and ordering (mean=5.00) was the best practiced factors that South African retail companies faced in Nigeria. This was followed by differentiation (mean=4.94) and first mover advantage (mean=4.87). The lowest mean came from expat deployment (mean=2.82) and aggressive growth policy (mean=3.31).
4.4. Conclusion
The research results provided a thorough consideration for the South African retail companies in Nigeria. The five interviews conducted with South African retail managers and industry specialists who deal with operations in Nigeria provided empirical evidence in the context of the research objectives set in chapter 1. The 146 questionnaires presented by South African retail employees provided an industry analysis on the operational challenges, the competitive factors and the new market entry strategies that can be followed for South African retail companies.
The research results allowed the study to compare and contrast the data from the chosen companies in order to assess how different companies penetrated the Nigerian market. The various findings which will be discussed in chapter 5: Conclusions and Recommendations, which will provide insight regarding the similarities and differences across various industry sectors. As a final point, the research results gained from this chapter enabled the study to conduct an analysis
84 for South African retail companies’ modes of market entry and strategies for doing business in Nigeria. It also aided in constructing an assessment for how South African retail companies could succeed when entering this business environment. The next chapter will focuses on the research findings, which will consist of the recommendations and conclusion.
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Chapter 5: Conclusions and Recommendations
5.1 Introduction
As more companies from emerging economies enter the global markets with the intention of expanding market share, the issue of the application of existing theories arises, as well as whether or not these companies follow the same evolutionary path as their developed counterparts (Klein and Wocke, 2007:319-337). The concluding remarks and recommendations that follow will show that South African retail companies indeed follow their own unique market entry strategies, which are significantly different to their emerging market counterparts.
This chapter will cover the final conclusions based on the research findings presented in chapter 4, including the proposed market entry plans. A discussion of the results will provide an assessment for the modes of market entry and strategies for South African retail companies in Nigeria. Furthermore, reference will be made to the market entry theories and strategies will be discussed in order to support the main findings of the research. This section will allow the research to compare the findings of the research with previous theories and seek to construct a final assessment for South African retail companies in Nigeria.
This chapter will also contain the conclusion and prospects for future studies. The latter is especially important, considering the exploratory nature of this research. This chapter will integrate the findings of chapters 3 and 4 to determine the modes of market entries and strategies for South African retail companies doing business in Nigeria. Furthermore, the findings will be triangulated to provide further meaning and understanding towards the research question.
5.2 Overview of the aim and objectives
The aim of this study was to identify the market entry and strategies of South African retail companies focusing on the Nigerian market. This stemmed from continuous interest of South African companies looking to operate in Africa particularly in the retail sector. This research seeks to contribute to South African retail companies looking to do business in Nigeria; the study aimed to identify an assessment which may highlight business friendly approaches for new entrants in the retail sector.
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The information gained from this research will be mutually beneficial for both Nigeria and South Africa counterparts looking to maximise business opportunities in emerging markets. The analysis is aimed to compare and contrast the data from the chosen companies in order to assess how different companies penetrated the Nigerian market. This provided insight regarding similarities or differences across various industry sectors. The research also serves as a guide to South African retail companies looking into market entry in Nigeria.
The following primary research objectives looked at modes of market entry strategies when positioning South African companies in Nigeria:
• To conduct an analysis of South African retail companies’ modes of market entry and strategies for doing business in Nigeria. • To construct a strategic framework for how South African retail companies would succeed when entering this business environment. This framework would be assessed from the collection of data on the background and success of each business, strategy and modes of market entry used once in Nigeria. • To identify the operational challenges involved when doing business in Nigeria (This segment will be discussed during the data collection process.).
The secondary research objectives:
• To determine the competitive factors impacting the ways in which South African retail companies enter the Nigerian market. • To identify new market entry strategies that can be followed by South African companies when entering Nigerian markets. • To identify the barriers that prevents South African retail companies from entering Nigerian markets.
5.3 Limitations
The foremost limitation that this study was the difficulty in obtaining the primary data from various companies. Securing interviews and filling in questionnaires was an arduous task that demanded time and resilience. In addition, the study provided a
87 general view of the retail industry with no specific attention to any sector, which made it an important limitation. However, this study may serve as complimentary evidence to broader research on online, clothing and food retail sectors.
Lastly, considering the fact that the data collected was primarily focused on South African retail companies in Nigeria, one should be careful in accepting the findings as widely applicable and it should rather treated as guidelines for South African companies. Although the study focused on a perspective from South African retail companies, a broader international study could have supported the findings holistically. Therefore, the lack of sampled international retail companies made this study an important limitation.
5.4 Research findings
The research findings provided the aggregation of the study and a refinement of the data. This process enabled unique insights into the modes of market entry strategies from a South African retail companies’ perspective on doing business in Nigeria. In reviewing the research findings of the study, it is worthwhile revisiting the hypothesis of the study, stated in chapter 1: Problem Statement.
Hypothesis
Best practices in market entry strategies provide South African retail companies an advantage when doing business in Nigeria.
Proposition
1. New modes of market entry strategies are used by South African companies when entering Nigerian retail markets. 2. There are many country specific advantages for South African retail companies doing business in Nigeria. 3. Various operational challenges impact on the success of South African retail companies doing business in Nigeria. 4. Partnerships with local firms are essential when entering Nigerian retail markets. 5. Marketing and sales strategies need to be adapted when doing business in Nigeria.
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Table 5.1 below will provide the results of the proposition test conducted for the study:
Table 5.1: The results of propositions tests
Propositions Summary of results (H1): There are no new modes of market entry Null hypothesis (H1): Rejected strategies that are used by South African companies when entering Nigerian retail markets (Proposition 1). (H2): There are country specific advantages that Alternative hypothesis (H2): have made market entry easier for South African Accepted retail companies expanding into Nigeria (Proposition 2). (H3): There are operational challenges involved Alternative hypothesis (H3): when identifying the best market entry practices Accepted for South African retail companies doing business in Nigeria (Proposition 3). (H4): There is a need to create local partnerships Alternative hypothesis (H4) when entering the Nigerian market (Proposition Accepted 4). (H5): There is a need for the adaption of Alternative hypothesis (H5) marketing and sales strategies when doing Accepted business in Nigeria. (Proposition 5).
5.5 Findings of qualitative research
The following qualitative research findings will be discussed in finer detail and will be directly linked to the literature review presented in chapter 2. The qualitative research findings were conducted through five in depth interview questions and, the content was analysed. For the purpose of this chapter the following research findings will be formulated within the context of the existing literature on modes of market entry strategies and internationalisation strategies.
5.5.1 Country specific advantages of Nigeria
The majority of the respondents identified market size and the lack of formal retail business as the specific advantages that make Nigeria an attractive choice for investment. This sentiment holds, as country specific advantages such as market size promote high levels of economic activities and disposable income, which is important in determining Nigeria as an attractive choice for investment. This claim
89 was supported by Brouthers, Brouthers, and Werner (2008:936-960), who stated that a country’s market potential size and growth can be an important determinant for foreign direct investment.
According to Shoprite’s chief executive, Whitey Basson, in an interview with Reuters, “even if you have 60% of the population living in poverty, 40% of the Nigerian population is still bigger than the South African population”. This statement is indicative of the potential of the Nigerian market as Shoprite plans to spend more than $200m on property development in Nigeria, in order to overcome the lack of infrastructure in the country (KPMG, 2013).
Respondent C stated that “The retail market is largely untapped, with most major retailers based in the south of the country”. This was evident with Shoprite holdings investing in several stores in northern Nigeria, despite threats of Militant groups such as Boko Haram. Furthermore, according to Nakata and Sivakumar (1997:461), early entrants gained advantages in distribution channels, market niches, distribution and marketing, lowered costs in production, government support in access to the best production sites and customer loyalty from first-mover brands.
Respondent E noted that the country specific advantage that the company found attractive was that its brand name would resonance in Nigeria and that there was a market gap in the upper consumer segment for quality retail goods. This finding is accurate, considering the fact that Nigeria’s emerging middle class are expecting household income to increase from a current 20% of the population to 27% of the population by 2020, putting the customer base within the target of formal retail chains (McKinsey, 2013).
Respondent B further explained that the emergence of moneyed middle class and the significant development of housing for such people made Nigeria an attractive choice for investment. This observation confirmed the findings by Analogbei (2013:13), who stated that “the re-emergence of the middle class in Nigeria was characterised by young professionals with a high disposable income, whom had adopted western lifestyles, including leisure shopping”. Analogei went further to say that companies need to take advantage of the situation and should favour the use of the Wholly Owned Subsidiary method of market entry (Analogbei, 2013:13).
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5.5.2 Barriers of entering Nigerian markets
Emerging markets face various challenges such as “high import duties, high levels of indirect taxation and other bureaucratic ‘hurdles’ usually include investments controls, policy reversals, and a lack of co-ordination across government ministries and customs/import problems” (Batra, 1997:95). The majority of the respondents identified banned items and regulatory bodies as barriers that prevented South African retail companies from entering Nigerian markets. According to “This Day Live” (2015), 40 items were recently included on the list of banned items in an attempt to access foreign exchange by the central bank of Nigeria because of the pressure on the local currency and the economic implications from imports.
Respondent D stated that the barriers to entry such as duplicated agencies affected their business, based on the fact that the various agencies policed the same legislation. These policies created serious contradiction within the system, as every state and senior official interprets the rules differently. According to Omojuwa (2012), the federal government of Nigeria spend nearly half a trillion naira to fund the duplicated agencies that have similar roles and responsibilities. These duplicated agencies have been known to “keep the red tape long”, and “overstay” their statutory duties.
Respondent D went on to add that it made “operations a nightmare”. Regarding the “three tier tax (central government, local government, different state tax systems)”, respondent D felt it was frustrating and difficult to manage. Corruption was also an issue, which respondent D stated that occurred on all levels, where no authority was needed to report or investigate. He went on to add that if one reports corruption to senior people, it would be costly as they would aim to take their cut.
From a clothing retail point of view, respondent D added that the weather and the seasonal difference, with no winter, made operations difficult, particularly through logistics and the planning of clothing ranges. This issue was compounded by the bans of certain categories for imports, which made sourcing and full assortment difficult. Ultimately, respondent D stated that “the big cultural difference makes trust an issue.” According to Broll (2015), this issue can be regarded as “tenant depth” and it refers to the depth in the range the retailers have available in a given market
91 catering for different activities/segments. Such issues can affect the ability to expand the retail market as all the factors need to work in synergy. Broll (2015) adds that shopping malls in Nigeria are typically occupied by the same tenants and that it is important to see growth in the market through the variety of what tenants have to offer.
The lack of formal retail space was also recognised as a barrier, as stated by respondent E. However, the Nigerian retail space, which accounted for 30,000sqm in just Lagos and Abuja at 2006, is expecting to see a growth across Nigeria to 277,000sqm by year end 2015 (Broll, 2015). The number of new shopping malls in Nigeria may provide investment opportunities for several retailers. The geographic spread of the malls will be an area of vast improvement for the market, and the spread is expected to cover 10 cities in the federation with the likes of Ibadan Port, Delta, Enugu, Kano, Harcourt, which are among other existing malls (Broll, 2015).
Respondent E added that some of the barriers faced in Nigeria were compounded by the supply chain inefficiencies faced in the country. Respondent C stated that the barrier that prevents South African retail companies from entering Nigerian markets was the sailing time from South Africa. Respondent D added that the country needs to address its road and rail networks, as it affected the logistics management and deliveries immensely. He went on to further add that the high rental costs and the climate of the country made entry into Nigeria difficult. According to Broll (2015), basic infrastructure and logistics is required in order to create an enabling environment for business. This observation suggests that retailers in Nigeria have had to allocate additional budget in order to fund basic services, which results in higher operating costs.
5.5.3 Government policies and regulations impacting market entry
According to Ingram and Silverman (2002:1-30), companies that struggle to create competitive advantages and formulate and implement strategies are usually determined by the institutions that do not empower them. This claim is supported by the research findings, where the majority of the respondents identified that the delays at customs, banned items and the repatriation of funds affected by government policies and regulations, which ultimately impacted their market entry strategy in Nigeria.
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Respondent C stated that “There were still restrictions though that hampered smooth entry, such as the Standards Organisation of Nigeria Conformity Assessment Programme (SONCAP) and National Agency for Food and Drug Administration and Control (NAFDAC) registrations and the banned list as mentioned. Lengthy clearance times at ports also resulted in losses due to demurrage and expiry dates.” Ciuci (2012) supports this claim and states that, based on the bureaucratic procedures, companies and products registered in Nigeria can take longer that they should. In addition, these lengthy clearance times can be attributed to the multiple layers within the protracted approval processes.
Respondent D stated the total ban on clothing and footwear imports restricted market entry until 2011, and that the ban on certain categories made local sourcing a priority to be able to have a full assortment. Respondent D went to further, adding that the furniture ban on some of their fittings made local development a priority and that the processes to import and be able to repatriate funds made planning and following the correct process essential. However, respondent D did state that the cost of doing business was a major constrain.
The findings above therefore raise the issue of the legal restrictions that may ultimately affect a company’s equity stake within the informal norms of a country. Government policies and regulations may therefore favour locally owned companies over foreign enterprises (Delios and Beamish, 1999:915; Peng, 2003:246), which may be due to the higher transaction costs of engaging in these markets. International companies may have to devise other strategies to overcome the various challenges (Peng, 2003: 275).
Therefore, the increased risks and incurred costs owing to government policies and regulations may encourage international companies to gain access to local resources in Nigeria in order to overcome the inefficiencies caused by weak institutions (Analogbei, 2013:15). This argument does come with a slight caveat: should companies invest in Nigeria, they may have to find suitable local partners with competitive prices that can contend with cheaper imports. However, it should be noted that because of the institutional voids in emerging markets, companies cannot rely on supply chain partners to deliver and manufacture products to consumers reliably and inexpensively (Khanna, Palepu, and Sinha, 2005:6-15)
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5.5.4 Successful South African market entry strategies
The majority of the respondents identified that Wholly Owned Subsidiaries were the most successful market entry strategies used by South African retail companies when entering Nigerian market. The findings can be supported by Menipaz and Menipaz (2011:358), who agree that opening Wholly Owned Subsidiaries and Mergers and Acquisitions are said to be preferred by international retailers. This observation is especially relevant to companies that seek to embark on a global strategy. This approach has been favoured based on the flexibility and the control that the company has in its foreign operations. Erramilli and Rao (1990:135) also note that Wholly Owned Subsidiaries allow greater involvement/control and returns despite the fact that they require significant commitments of capital and managerial resources.
Respondent A stated that the infancy of the market and the lack of suitable partners at the time encouraged the use of a Wholly Owned Subsidiary approach. Respondent A further added that this decision was favoured because of the country’s high market potential and its ability to provide greater returns and profitability. According to Canabal and White (2008:267), companies seek to gain long term investment modes in order to achieve economies of scale and to lower the cost of operations.
Respondent D argued that the “entry to the market as sole investors seem to be the best option” and that “there are multiple examples of partnerships that failed”. In terms of this research, the findings did indicate that in terms of entry modes, Wholly Owned Subsidiaries were favoured as opposed to franchising, partnerships and acquisitions. This finding was supported by Games (2008:6), who stated that the lack of suitable acquisition targets and limited partnerships was owing to the informal nature of the retail industry in most African countries.
However, independent modes of entry can be particularly sensitive to the efficiency of the local market, especially with the influence of financial markets and the market for corporate control (Antal-Mokos, 1998:145). Therefore, risk conscious investors would be recommended to use collaborative modes such as Joint Ventures in order to access the local resources when market transactions become difficult.
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Respondent C did add that there was no set standard and each company had to develop their own modes of market entry and determine when to do so after the first entrant (in that field).
5.5.5 Supporting data on modes of market entry in Nigeria
Although “market size, growth, competition and ease of access, as well as models of indirect measures prediction of demand for specific products, estimates of import demand are all indicators of market potential” (Sakarya et al., 2007:108), the majority of the respondents identified that limited supporting data was available when considering the modes of market entry in Nigeria. Respondent D contests that that the available data was outdated and hard to get hold of and added that the best way to gather data was to partner up with a local, well-developed network. Respondent B believed that very little data was available and that the company had to find their own means through external consultants such as KPMG. Wright et al. (2005:1-19) does support this claim by stating that in emerging markets there are limited or no market data, a lack of regulatory discipline, few communication channels, non-existent or poorly developed distribution systems and a tendency to change business regulations frequently and unpredictably.
5.5.6 Market entry strategies comparison with Nigeria
Most of the respondents identified that each country is unique with regards to the differences between market entry strategies in Nigeria and other regions/countries across Africa. Respondent A stated “We asses each market on its own merits; although we have vast experience on the continent, our decisions are not tailored by previous markets and therefore market dictates appropriate strategy for entry”.
This view does show a different side to the argument regarding the ease of doing business in Nigeria. As of 2015, Nigeria was ranked at 170th in the World Bank’s “Ease of Doing Business Index”, below economic giants such as Mauritius and South Africa, who hold the ranking of 28th and 43rd respectively (Doing Business, 2015). However, the Nigerian government has made several moves to strategically develop non-oil sectors to encourage foreign direct investment. As an example the Nigerian government introduced the One Stop Investment Centre (OSIC), which assemble relevant agencies of the government in one location in order to make business entry
95 procedures convenient, efficient, simple, transparent and timely. In addition, companies that intended to trade within sectors where the demand outstripped the supply where granted pioneer status and tax incentives for the first three to five years of their operations (Ciuci, 2012).
Respondent B that stated that Nigeria is probably the most difficult country to do business albeit the fact that each country has its own challenges, such as duties, customs, entity registration, product licencing and exorbitant fees thereon. It is worth mentioning, however, that the experience of companies in the rest of the markets in Africa reduces the retail market and the cultural distances for the companies firms and the host Nigerian market (Analogbei, 2013:12).
5.5.7 The extent of tailoring product and service offering
The majority of the respondents identified that limited tailoring was made on product and service offerings towards market requirements in Nigeria. Respondent A stated “we serve the Nigerian market with our standardised products, which we believe are the best for the market and therefore there is little need for us to significantly modify our range of products to fit the local demand.” Respondent C stated that “as the manufacturing industry matured and quality standards improved, there was a growing demand for locally produced products” and that “the average Nigerian consumer is very brand conscious, possibly more so than in SA, which means that the target market may be different than first perceived.”
From retail clothing point of view, Slater and Narver (1999:1165) stated that the market oriented companies need to appreciate customers’ expressed and latent needs and develop necessary solutions for those needs. Respondent D endorsed this view, saying that a major overhaul in styling, seasonality, branding, sizing and fashion was needed. Respondent D further stated that there was a need to focus on core competency and to upgrade electronic marketing and electronic contact with their customers.
However, respondent E believed that their company did not necessarily tailor its products to the Nigerian market, for which it suffered. Respondent D went on further to add that their pricing was not compelling enough for the Nigerian consumer and that Nigerians consumers were highly brand conscious and suffered due the
96 company’s inability to promote the brand sufficiently. Respondent D finally added that their products were not priced competitively and were not received as products of fair value. Ultimately, respondent D believed that they “needed to do some research on that front and this ultimately was a reason for the closing down of some of our stores”. This claim was supported by Khanna et al. (2000:6-15), who stated developed country multinationals who struggle in emerging markets often blame their failures on the lack of finding skilled market research companies to enlighten them on reliable customer preferences in order for them to tailor their products to specific needs and increase local demand.
5.5.8 HR policies for South African retail companies entering the Nigeria
The primary challenge that companies face with regards to human resources and recruitment is the need to become “local”. According to Ciuci (2012), in order to reduce the level of unemployment and to improve development, the Nigerian government instituted certain policies that demand that there needs to be a 90% of the local staffing for foreign companies. Notwithstanding of the government policies, the majority of the respondents identified that their companies’ Nigerian offices were headed by an expat and that their companies’ had a policies to train local talent for the future.
According to GIBS (2006), it is important that one should consider recruiting the best local and to invest in developing local talent. Respondent A did support this insight and claimed that they continue to train their local staff in order to enable them to work efficiently and that there is definitely space within their company for locals to assume the position of a general manager in Nigeria in the near future. However, according to Ciuci (2012), Nigeria has a low illiteracy rate, and recruiting skilled labour has become an issue, and many companies have had to initiate extensive training programs for their employees.
Respondent D stated that “All staff positions were localized except for the general managers’ position and that a training school was established”. Respondent D added that “Selected staffs were sent to other countries for training and exposure, and that recruiting the right culture fit for our company was critical.” The findings are consistent with human resources requirements that state that despite the large population, human capital or labour is another challenge in emerging markets
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(Khanna et al., 2005:6-15). International retailers have been criticised in the past by target country authorities for their lack of contribution to local economies, despite the potential that these companies have to recapitalise these economies to fuel growth (Menipaz and Menipaz, 2011:359).
5.5.9 Best practices for entering Nigerian markets
The highest number of the respondents identified that the partnership with locals was the best practice used when entering the Nigerian market. Respondent C stated that companies need to do thorough market research, gain local knowledge and partner with a reputable clearing agent that specialises in one’s general product field. Respondent C added that companies need to always comply with legislation and regulations, even if it will take longer. According to Quinn and Alexander (2002:264), local partners understand the local market conditions better than the investor and are, therefore, better placed to handle local issues such as red tape, language barriers, culture, bureaucracy and other political problems
However, company related resources that have been held by local companies in the host market, such as real estate, assets, technology, labour skills and access to utilities, ultimately affect the final mode of entry (Meyer and Estrin, 2001:575-584). Therefore, it is worth mentioning that the findings identified that South African retail companies prefer to use Wholly Owned Subsidiary entry strategy in order protect their tacit assets. Experts have revealed that companies codify their operational know-how and local market insight, decision making systems and processes in order to maintain and create a “firm level knowledge base” (Brown, Dev, and Zhou, 2003:473). South African retail companies will therefore be able to protect their competitive advantage based on the ownership of their assets. According to Erramilli and Rao (1990:135), it is critical in understanding the nature of the retail ownership assets vis-à-vis the perceived dependability (defensibility) and transferability of the business.
Respondent C further added that companies need to ensure that they work with a reputable bank and understand the exchange controls. Ciuci (2012) does support this statement and writes that the lack access to financing is factor that affects successful business practice in Nigeria, and that it is difficult to get loans from
98 financial institution. Even when these loans are available, they are at exorbitant interest rates. Therefore, from an expropriation of funds point of view, companies would have to ensure that their revenue can be successfully transferred to affiliated banks in their home country.
Finally, respondent E stated that market research would need to be done before undertaking market entry in Nigeria, as it would be crucial to understand the Nigerian middle class and the brands that they value. Respondent E added that finding a local partner with a large network base would be highly advantageous in Nigeria. Respondent E did state that operating within the lower living standards measure (LSM) segment held more value for any company looking to enter the Nigerian market. Studies do support this statement relating to entry strategies and show that in deregulated markets, local partner alliances can aid in complementing and entrenching a company’s competitive position (Doh, 2000:551). Respondent E concluded that understanding the system and having patience in the market is necessary.
5.5.10 Framework for entering the Nigerian retail markets.
The majority of the respondents identified that there is a need to develop governmental agencies for easier market entry and that companies need to adapt to the market to build controls and policies. However, Respondent A stated that the head office has to set the necessary framework, based on the company’s past history and the composition of its management structures. Respondent A also said that a centralised structure would need to operate the entire subsidiaries, from product pricing, promotions and assortment decisions. This respondent went on to further state that the supply chain would need to be administered by the head office, which would include managing suppliers in Nigeria in order to assess their performances. However, Respondent B offered a different view point and stated that “the simplification of business establishment processes and the setting up of transparent, step by step, simple processes will enable far more businesses to enter the market”. Respondent B went on to add that government agencies would need to be set up in order to serve as a function of a “one stop” facility.
Respondent E stated that “being able to adapt our systems to the terrain and having a market entry strategy that can be flexible to the market” was necessary, but added
99 that “much work needs to be done with governmental agencies in order to make our entry in Nigeria equally beneficial for all parties.” This view is supported by academic research, which endorses the claim that a company’s “strategic flexibility” is necessary for companies to take advantage of existing and new opportunities in the continuous changing market conditions in emerging economies (Analogbei, 2013:12). However, this may depend on the company’s managerial structure, branch autonomy and financial resources.
In addition to the above, respondent C stated that “It can be fairly sequential, but you have to be flexible”. Respondent D provided an example whereby Nigeria does not have enough Forex to cover their foreign payments; and that it could create financial difficulty for smaller companies who are reliant on the repatriation of funds. This view was supported by Menipaz and Menipaz (2011:123), who stated that companies that choose on opening Wholly Owned Subsidiaries as a mode of entry aim to have flexibility through the control of its processes and procedures, with the option to have international managers making decisions for the company without much local interference.
In closing, respondent D stated that companies need to understand the Nigerian culture and adapt to the Nigerian way of doing business. Respondent D further added that companies need to stay true to their values and business strategy, but adapt to their local market and build robust controls and policies.
5.6 Findings of quantitative research
The following quantitative research findings will be discussed in finer detail. The quantitative research findings were obtained through 146 questionnaires and descriptive analysis. For the purpose of this chapter, the following research findings will be formulated within the context of the existing literature on modes of market entry strategies and internationalisation strategies.
5.6.1 External barriers to business growth for South African Retail companies in Nigeria
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Economic barriers
The majority of respondents (88.5%) identified the “inflation rate” as the most important economic barriers that faced their business. Some respondents indicated that the “economic recession” (81.8%) and the “taxes and tariffs” (78.3%) as also strong barriers. 70.3% of respondents considered the ‘low disposable income” as a strong barrier that faces their business. Only about 47.1% of respondents stated that the “lack of infrastructure” was a strong barrier that faced their business.
Political barriers The majority of respondents (86.0%) identified that “government regulations” were the most important political barrier that faced their business. Some respondents indicated that the “political instability” (82.1%) and “disruptive union action” (54.2%) were strong barriers. 43.6% of respondents considered “consumer protection” to be a barrier and only about 51.1% of respondents stated that the “labour legislation” was a barrier facing their business.
Social barriers The majority of respondents (69.7%) identified the “prevalence of HIV and AIDS” as a major social barrier. Some respondents indicated that the “levels of unemployment” (57.3%) and the “shortage of skilled labour” (54.3%) are also strong to extreme barriers. 56.2% of respondents considered the “levels of illiteracy” as moderate barrier that face their business and only about 38.5% of respondents stated that the ”level of corruption” was a slight barrier that faced their business.
Industry-based factors The majority of respondents (95.1%) identified that “intense rivalry” was not an industry barrier that faced their business. Some respondents indicated that the neither “high bargaining power of the buyer” (75.3%) nor the “threat of substitute of product or service” (61.1%) are barriers facing by their business. Some 62.2% of respondents did consider that the “threat of new entrants in
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the market” to be a moderate barrier, while 51.7% of respondents stated that the “high bargaining power of the supplier” was a slight barrier that faced their business.
Environmental-based factors The majority of respondents (100%) identified that “climate change” was the most important political barrier that faced their business. Some respondents indicated that “energy management” (86.1%) and “food security” (47.1%) were also extremely strong barriers. Only 31.7% of respondents considered that “water security” were extremely strong barrier, and about 53.2%% of respondents stated that “waste management” was a slight barrier that faced their business.
5.6.2 Market entry modes for South African Retail companies in Nigeria
Market entry modes The majority of respondents (93.9%) identified that “Cost Leadership” was a slight market entry mode barrier for their business. Some respondents indicated that “Mergers and Acquisitions” (86.7%) and “Joint Ventures” (79.6%) were not a barriers at all. Only about 54.0% of respondents stated that “Licencing” was a moderate barrier that faced their business.
Market entry modes and the level of initial capital investment The majority of respondents (99.3%) identified “Wholly Owned Subsidiary” as the market entry mode with the highest level of initial capital investment needed that faced their business. Many (91.0%) respondents considered that “Mergers and Acquisitions” was a market entry mode with a high level of initial capital investment needed that faced their business. Respondents also indicated that “Franchising” (95.0%) and “Licencing” (89.9%) were market entry modes with a low level of initial capital investment needed. Respondents also stated that “Joint Ventures” (83.8%) are the market entry mode with a medium level of initial capital investment needed that faced their business.
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Supporting data on modes of market entry The majority of respondents (99.3%) identified that “population growth” was a supporting data on modes of market entry. Some 98.6% of respondents considered that only “limited data” was available in terms of supporting data on modes of market entry. Some respondents indicated that the “real exchange rate” (83.8%) and “retail Industry sales” (62.2%) were also strong barriers. 87.2% of respondents stated that the “unemployment rate” was a moderate barrier that faced their business.
Mode of market entry factors The majority of respondents (93.5%) identified “political risk exposure” as the most important market entry barrier that faced their business. Some respondents indicated that the “speed of entry” (84.6%), “timing and long term vision” (78.8%) and “control of market” (customer knowledge) (76.8%) as being problematic. However, about 58.9% of respondents stated that the “technological leakage” (information asymmetry) was only a slight barrier that faced their business.
The trade regulations and standards The majority of respondents (89.0%) identified that “prohibited and restricted imports”, (89.0%) “Import requirements and documentation” and “merchandise standards” (77.1%) were the major trade regulations and standards barriers that faced their business. Some respondents indicated that “import tariffs” (85.5%) and “trade agreements” (78.1%) were also moderate barriers
5.6.3 Competitive factors for South African Retail companies in Nigeria
Competitive factors The majority of respondents (79.2%) identified that “discount initiatives” was an extremely influential competitive factor that faced their business. Some respondents indicated that the effective “promotional strategies” (86.2%) and “low pricing of products” (76.7%) were also very influential competitive factors
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73.0% of respondents also considered that the “well-developed infrastructure” was very influential factor. Only 93.6% stated that “customer relationships” was a somewhat influential competitive factor that faced their business.’
Local employees’/partners’ role The majority of respondents (71.8%) identified that “operational effectiveness” was an extremely influential factor for local employees’/partners’ role in the company’s competitiveness. Some respondents indicated that the “knowledge of the local environment” (69.7%) and “language barrier” (68.3%) was also extremely influential. 74.1% of respondents considered that “cost effectiveness”, while 47.9% of respondents stated that “marketing” was only slightly influential.
Country specific advantages The majority of respondents (93.8%) identified the “growing middle class” as an extremely important country specific advantage that faced their business. The majority of the respondents indicated that “retail industry development” (91.7%), “market size” (89.6%) and “brand awareness” (87.0%) were extremely important country specific advantages. Only about 67.4% of respondents stated that the “returning diaspora” was of a low importance country specific advantage that faced their business.
The level of education/training The majority of respondents (93.1%) identified that “outbound logistics” was an extremely influential level of education/training that faced their business. Some respondents also indicated that “inbound logistics” (63.2%), “marketing” (57.2%) and “production operations” (77.2%) are very influential levels of education/training for South African companies. Only about 72.7% of respondents stated that ‘service’ was a very influential level of education/training that faced their business.
5.6.4 Operational challenges for South African retail companies in Nigeria
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Operational challenges The majority of respondents (89.5%) identified that “energy and power supply” was an extremely important operational challenge that faced their business, while some respondents indicated that “road and transport network” (52.9%) and “effective banking services” (49.0%) are also extremely important. 43.6% of respondents considered that “mobile network services” was a moderately important challenge that faces their business. Only about 46.8% of respondents stated that “workable computer system” was a challenge of low importance.
Procurement procedure challenges The majority of respondents (97.2%) identified that “planning/scheduling with vendors” as an extremely important procurement procedure challenge faced their business. A large number of respondents also indicated that “quality assurance programmes” (87.3%) and ‘corruption’ (76.2%) are extremely important. 63.0% of respondents considered that “suppliers” is an important procurement procedure challenge that faces their business, while only about 40.1% of respondents stated that ethical sourcing was challenge of low importance.
Inventory management challenges The majority of respondents (96.4%) identified “electricity shortage” as an extremely important inventory management challenge that faced their business. Many respondents also indicated that the “port delays” (89.9%), “security” (89.3%) and “order intake systems” (85.4%) were also extremely important. Only about 82.7% of respondents stated that “storage facilities” was an extremely important inventory management challenge that faced their business.
Technology and innovation challenges
The majority of respondents (83.8%) identified that “integrated information systems” was a moderately important technology and innovation challenge
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that faced their business. Some respondents indicated that “mobile payments platforms” (78.4%) and “Omni channel management systems” (49.3%) were also moderately to important technology and innovation challenges. The “credit payment facilities” (67.6%) and “digital rewards programmes” (66.0%) were not at all important technology and innovation challenge that faced their business.
Distribution processes challenges The majority of respondents (74.3%) identified that “storage facilities” was an extremely important distribution processes challenge that faced their business. Some respondents also indicated that “transportation” (71.8%) and “inventory” (60.7%) were also as extremely important. 73.4% of respondents considered that “communication” was an important distribution processes challenge and only 22.0% of respondents stated that “managing reverse logistics” was of low importance
Product challenges The majority of respondents (97.2%) identified that “brand loyalty” was an extremely important product challenge that faced their business, while some respondents indicated that “product segmentation” (78.5%) and “product pricing” (76.6%) were important product challenges. 71.3% of respondents considered that “localised products” was a moderately important product challenge, while only about 59.6% of respondents stated that “promotions” was an important product challenge.
In-store challenges The majority of respondents (95.1%) identified that “poor reporting” was the most important in-store challenge that faced their business. Some respondents indicated that “forecasting system” (90.1%), “stock figures” (data accuracy) (87.0%) and “business intelligence” (86.8%) are important in-store challenges. In addition, about 49.0% of respondents stated that “system flexibility” was an important in-store challenge that faced their business.
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5.6.5 Best practices for South African retail companies in Nigeria
Best practiced South African retail companies The majority of respondents (87.2%) identified that Woolworths and Truworths (81.7%) were the least influential South African retail companies in Nigeria. However, respondents indicated that Shoprite (85.3%) and Pep Stores (83.7%) as an extremely influential South African retail companies in Nigeria, while respondents stated that Game (68.6%) and Mr Price (60.0%) were very influential.
Best practice factors All respondents (100.0%) identified that “supply chain and ordering” was the most influential best practice factor faced their business. The majority all indicated that “differentiation” (94.4%) and “first mover advantage” (86.9%) were the most influential best practice factors. Finally, “research and development” (84.1%) and “ownership and control” (83.7%) were influential best practice factor that faced their business.
5.7 Triangulation
Triangulation is done by integrating and compering quantitative and qualitative results in order to understand the modes of entry for South African retail companies in Nigeria. The triangulation of the qualitative and quantitative results therefore reinforces the analysis and makes it clear that the combination of these factors, among other things, ought to be taken seriously. Table 5.2 bellow will present the triangulation of the results.
Table 5.2: Triangulation of results
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Factors preventing Quantitative results Qualitative results Similarities or contrast market entry External barriers to Most of respondents The majority of respondents The qualitative and quantitative business growth identified that delays at identified that the inflation rate, results both revealed that customs, banned economic recession, the high regulatory bodies were a barrier items, the repatriation bargaining power of the buyer, and to business growth in Nigeria. of funds, banned items government regulations were The qualitative findings showed and regulatory bodies political barriers to business growth. that the repatriation of funds, were barriers that However, respondents stated that inflation rate, economic recession prevent South African the intense rivalry was not an and the high bargaining power of retail companies from industry barrier to business growth. the buyer were barriers to entering Nigerian Respondents added that business growth. In contrast, the markets. environmental barriers such as quantitative findings indicated climate change and energy that the intense rivalry was not management was a barrier to an industry barrier to growth. business growth. Quantitative findings did however discuss environmental barriers in the form of climate change and energy management as influential barriers.
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Market entry The majority of Most of respondents identified that Both findings indicated that: modes respondents identified cost leadership was a slight market Wholly Owned Subsidiaries were that Wholly Owned entry mode barrier for their business the most successful market entry Subsidiaries as the Some respondents indicated that strategies used by SA retail most successful Mergers and Acquisitions and Joint companies when entering market entry strategies Ventures and Wholly Owned Nigerian market. Furthermore, used by SA retail Subsidiaries were not barriers faced both findings identified that companies when by their business. limited supporting data was entering Nigerian The majority of respondents available when considering the market. identified that Wholly Owned modes of market entry in Nigeria. However, majority of Subsidiaries were the market entry Furthermore, Mergers and the respondents mode with the highest level of initial Acquisitions and Joint Ventures identified limited capital investment. were not barriers that were faced supporting data as The majority of respondents by their business. available when identified that the population growth In contrast, quantitative findings considering the modes was a supporting data on modes of identified that the population of market entry in market entry. However, some growth was a supporting data on Nigeria. respondents also stated that limited modes of market entry data was available in terms of The quantitative findings added supporting data on modes of market that market entry factor such as entry. cost leadership was a barrier.
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Respondents identified political risk The findings added that Wholly exposure as the most important Owned Subsidiaries were the market entry barrier that faced their market entry mode with the business. Some respondents highest level of initial capital indicated that the speed of entry and investment. timing and long term vision were Quantitative findings identified also strong barriers. that political risk exposure, speed The majority of the respondents of entry and timing, prohibited identified that prohibited and and restricted imports, import restricted Imports and import requirements and documentation requirements and documentation as and long term vision were the trade regulations and standards most important market entry barriers that faced their business. barriers that faced their business.
Competitive factors Respondents identified The majority of respondents Both findings take into account that market size and identified that discount initiatives, that market size and the lack of the lack of formal retail promotional strategies and formal retail business are business as operational effectiveness were competitive factors that make competitive factors that extremely influential competitive Nigeria an attractive choice for
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make Nigeria an factor that faced their business. investment. attractive choice for Respondents identified that the In contrast, quantitative findings investment. growing middle class was an added that growing middle class extremely important country specific was an extremely important advantage. competitive factor The majority of the respondents However, quantitative findings identified that the retail industry suggested that discount development and market size were initiatives, promotional strategies competitive factors affecting their and operational effectiveness companies. were extremely influential Finally, respondents stated that competitive factors. The outbound logistics was an extremely outbound logistics was also influential level of education/training regarded as extremely influential that faced their business for the education/training that faced their business. Operational The majority of The majority of respondents Qualitative findings identified that challenges respondents identified identified that energy and power duplicated agencies, corruption, that the duplicated supply was an extremely important supply chain inefficiencies, the agencies, corruption, operational challenge that faced high rental costs and the climate supply chain their business. of the country made entry into inefficiencies faced in Respondents also identified that Nigeria operationally challenging.
111 the country, the high planning/scheduling with vendors Quantitative findings identified rental costs and the was an extremely important that planning/scheduling with climate of the country procurement procedure challenge vendors was an extremely were operationally faced their business. important procurement procedure challenging. The majority of respondents also challenge faced their business. identified electricity shortage as an The majority of respondents also extremely important inventory identified electricity shortage as management challenge that faced an extremely important inventory their business. Some respondents management challenge that indicated that the port delays and faced their business. Some security were extremely important respondents indicated that the inventory management challenges. port delays and security as Respondents identified that the extremely important inventory integrated information systems as management challenges. moderately important technology Respondents identified that the and innovation challenge that faced integrated information systems their business. as moderately important Respondents identified those technology and innovation storage facilities was an extremely challenge that faced their important distribution processes business. challenge that faced their business. Respondents identified those
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The majority of respondents storage facilities was an identified that brand loyalty as extremely important distribution extremely important product processes challenge that faced challenge that faced their business. their business. The majority of respondents The majority of respondents identified that poor reporting and identified brand loyalty as forecasting systems was the most extremely important product important in-store challenge that challenge that faced their faced their business. business. The majority of respondents identified that poor reporting and forecasting system as the most important in-store challenge that faced their business.
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Best practices The majority of the The majority of the respondents Qualitative findings indicate that respondents identified identified Woolworths and Truworths a partnership with locals was the that partnership with as the least influential South African best practice for entering the locals was the best retail companies in Nigeria. Nigerian market. In addition, practice that can be However, respondents indicated that companies would have to adapt used when entering Shoprite and Pep were extremely to the market and build control Nigerian markets. In influential SA retail companies in policies. Government agencies addition, the majority Nigeria. were recommended to assist in of the respondents The majority of the respondents the ease of market entry. identified that there is identified that supply chain and Quantitative findings found a need to develop ordering was the most influential Shoprite to be the most governmental best practice factor faced their influential company in Nigeria agencies for easier business. Furthermore, and that a differentiation and first market entry and that differentiation and first mover mover advantage would be most companies need to advantage were the most influential influential in Nigeria. Influential adapt to the market to best practice factors. best practices included supply build controls and chain and ordering. policies.
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5.8. Recommendations and implications for management
Deriving from the findings of this study, several recommendations and implications were considered for South African retail companies in Nigeria. These are listed below. :
Recommendations
It is necessary for South African retail companies to ensure that before entering Nigeria thorough market research is undertaken. Therefore, South African retail companies would have to identify a strong local partner with an entrenched network in Nigeria. This partnership will allow the various retailers to understand their target market and the product or the service that they are providing. This understanding includes country specific barriers such as sailing time, seasonality and port delays etc. It also necessary that South African retailers understand that entering Nigeria is a complex undertaking and that the challenges and practices in other African markets should be considered in isolation. Therefore, South African retailers with prior experience in other African markets should not expect the same conditions in Nigeria. South African companies should enter the Nigerian market using a mode that favours local know-how and the most control. Although it may be complex in its application, such a decision will allow the incumbent retailer to benefit from long term investment, strategic shifts and sustainability. According to Bartman (2014:46), if the initial entry is taken with a local partner with domestic experience, companies would have to manage those relationships strictly. Bartman further adds that if expansion is part of the company’s strategy, a local partner’s ability to finance their portion of the financing needs to be taken into consideration. South African retail companies need to select their product ranges carefully, considering the various import bans sanctioned in Nigeria. Retailers would have to identify suitable local suppliers before entry in order to fulfil local demand and their product variety. This factor may be crucial for the company’s brand identity and long term sustainability in Nigeria.
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South African retailer companies need to understand that the long term investment approach is necessary in the growing Nigerian retail market. Time spent in the Nigerian market will provide South African retail companies with valuable know-how and insight into the trading environment and consumer market. This issue will be of importance, considering the fact that there is a limited amount of supporting data for market entry in Nigeria. From local staffing point of view, companies with a long term investment strategy in Nigeria will need to realise the benefits of employing local managing directors. Notwithstanding the local staffing regulation, South African retail companies will be better suited to understand the local customers, language and business environment. By investing in nurturing local leaders, companies will be able to achieve broader localisation. Therefore, companies should consider training their local employees for top managerial positions through internal programmes or specialised courses such as Masters of Business Administration (MBAs). The establishment of governmental agencies and the upholding of the rule of law needs to be addressed. The Nigerian government will have to intervene and protect companies against the risks of information asymmetry (intellectual property rights) and partner disputes, especially when dealing with modes of entry such as franchising, licensing and Joint Ventures. South African retail companies are recommended to have a centralised structure that will allow the Nigerian operations to have flexibility and the necessary leadership to expand in the market. Therefore, an entrepreneurial proclivity needs to be inherent within the company’s vision and values when entering the Nigerian market. This proclivity includes the ability for South African retailer companies in Nigeria to be adaptable to the local environment. South African retail companies will be able to achieve this goal by staying true to their founding values and business strategy and, in so doing, adapting to the market the company will be able to build robust controls and policies.
Implications for management
South Africa retail companies in Nigeria need to be abreast of the changing government policies and regulations affecting the retail industry. As an example,
116 trade embargos such as the recently lifted importation of textile materials in Nigeria could have massive implications for management (Vanguard, 2015). By keeping up with Nigerian legislation, South African retail companies will be able to plan and adapt to the retail environment and benefit from the opening up of the market. For example, Nigeria has already removed furniture from the Import Prohibition Lists and the government has promised to remove all items by 2020 once the market was harmonized (Vanguard, 2015).
Furthermore, the Common External Tariff (CET) is subject to review every five years and this may serve as an assurance for importers who can expect to plan five years ahead for duty payable items. South African retail companies can benefit from Nigeria in the long term; however, it will demand patience and resilience. The various implications on management would suggest that South African retail companies need to invest in business intelligence divisions in order to make informed business decisions (Ciuci, 2012).
The management of South African retail companies should also take cognisance of the following implication when it comes to the favoured collaborative mode of entry through a local partner: As the market stabilizes and the political and economic conditions improve, the use of independent entry mode strategy will become favourable. Thus, as the retail competitive landscape improves it will introduce new competitors who will easily replicate and expand across the market. Furthermore, incompatible partners may have implications on the company’s growth and strategic intent, owing to the lack of finance, business know-how, long term vison and so forth.
The implications management may face due to the cultural distance within the entry mode decision in the Nigerian retail sector needs to be considered. South African retail companies need to ascertain the cultural distance between their home country and Nigeria. This awareness will be vital for the company’s survival as the market develops. This fact was presented in the research findings for companies that had home strategies that did not relate with the local consumer and ultimately led to a company’s failure. This study identified the various recommendations and managerial implications that South African retail companies need to take into account when deciding a position on entry mode strategies.
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5.9 Strategic framework for South African Retail companies entering the Nigerian business environment
As part of the objectives of the study, this section will present a strategic framework for how South African retail companies can succeed when entering this business environment. This framework was constructed from the collection of data on the background and success of each business, strategy and modes of market entry used once in Nigeria.
A strategic framework can be regarded as a comprehensive illustration of a company’s strategy. According to Clearpath USA (2015), a strategic framework enables a company to clarify the team projects and individual efforts to achieve the best outcomes. Therefore, a strategic framework provides a company with meaningful sequences of activities and measures that will aid the company’s key efforts in implementing its internationalisation strategies.
The strategic framework presented seven factors that could be taken into consideration by South African retail companies in Nigeria, namely: the use of a centralised structure, Wholly Owned Subsidiary mode of market entry, local partnership, an aggressive expansion strategy, a standardised range of products tailored to the local market, forecasting and reporting systems and local internal programmes. Figure 5.1 below will provide an illustration of the strategic framework constructed for South African retail companies in Nigeria:
Figure 5.1: Strategic framework for SA retail companies in Nigeria
Centralised Structure Wholly Owned Local Internal Subsidiary Programmes mode of market entry
Forecasting Systems And Local Reporting Partnership Systems Standardised Range of Aggressive Products Expansion Tailored to Strategy The Local Market
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5.9.1 The use of a centralised structure
Evidence from the findings support the need for South African retail companies to have a centralised structure. A centralised structure will allow the company to operate the entire subsidiaries, from product pricing to promotions and assortment decisions. This structure will enable the company to protect its brand equity and its operational efficiency across all its branches in Nigeria. However, companies undertaking a centralised structure would need to have sufficient scale and resources in order to succeed. The benefits of a centralised structure will allow South African retail companies to have flexibility and the necessary leadership to expand in the market. A centralised structure will also promote rapid speed of entry and the ability to undertake an aggressive expansive strategy.
5.9.2 Wholly Owned Subsidiary mode of market entry
Evidence from the study support the need for a Wholly Owned Subsidiary mode of market entry in Nigeria. Several pertinent reasons for the support of a Wholly Owned Subsidiary were the asymmetry of information for South African companies, the lifting of import bans, democratic stability and the exchange control regulations in Nigeria. The findings also suggest that although the retail industry in Nigeria was in its infancy a couple years ago, the industry has been liberalised sufficiently enough for investors to enter the country through sole ownership.
According to Park and Sternquist (2008:281), retail companies that are looking to expand prefer opening branches or establishing Wholly Owned Subsidiaries for their international operations, although Franchising has been used in this industry. The reasoning behind this preference is because the Wholly Owned Subsidiary entry modes allow the company to open its own stores and potentially make greater returns in its profits (Park and Sternquist, 2008:281).
From a competitive advantage point of view, South African retail companies using Wholly Owned Subsidiaries will be able to protect their brand awareness, assets and know-how in the region. Wholly Owned Subsidiaries will therefore provide companies with greater flexibility through the control of its processes and procedures, with the option to have international managers making decisions for the company without much local interference.
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5.9.3 Local partnership
Findings from the research supported the need for local partnership in Nigeria. Despite the regulatory requirements for the implementation of local ownership in Nigeria, the study supports the need for a strong local partner in Nigeria. Partnering with local partners who understand the market, the red tape, language barriers, culture, bureaucracy and other political problems will be of an advantage for a South African retail companies. According to Doh (2000:551), other studies support this statement and emphasise that local partner alliances can aid in complementing and entrenching a company’s competitive position.
Local partnerships have provided an ease of doing business and opportunities for international retail companies in Nigeria. Local retail groups such as Actis and the Artee Group of Nigeria have partnered with international retail chains to house their stores in their malls (How we made it in Africa, 2014). Shoprite Holdings partnered with the Persianas Group of Nigeria and secured retail space at Nigeria’s largest shopping mall, the Palms Shopping Mall in Lagos (How Africa, 2015). Shoprite has leveraged of the opening of shopping centres and malls and it has been a feature of Shoprite’s business model, as expressed by the chairman of Shoprite, Mr C. H. Wiese, who stated in the company’s annual report (Shoprite Holdings, 2008:8), “we have brought a developed country’s shopping experience to millions of people who have never been exposed to trading of this nature”. Shoprite has therefore gone beyond the normal retail approach and has invested in the urban development and modernity of its new shopping outlets (Miller, 2006). This example provides supporting evidence as to why South African retail companies should partner with local partners in Nigeria.
5.9.4 Aggressive expansion strategy
The findings supported the use of an aggressive expansion strategy in Nigeria, based on the untapped nature of the Nigerian retail industry. The lack of retail companies in the north of Nigeria, for example, provided opportunities for South African retail companies such as Shoprite Holdings, which benefited from a first mover advantage in north Nigeria.
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For example, Shoprite has continued to show much confidence in Nigeria and has opened a new $20 million store in the Kano state, which is situated in the volatile northern region of the country. According to the African Business Review (2014), the new store in Kano will bring the total number of stores in Nigeria to eight. Despite concerns of security, Shoprite plans on forging on with its aggressive expansion drive and looked to open four stores before the end of 2014.
Therefore, companies with a long term investment approach in Nigeria will need to use an aggressive expansion strategy in order to entrench their position in the market. Having a scaled business will allow South African retail companies to attain a sustainable competitive advantage in Nigeria.
5.9.5 Standardised range of products tailored to the local market
The study also highlighted the importance of a standardised range of products tailored to the local market. The findings suggested that as the manufacturing industry matured and quality standards improved, a growing demand for locally produced products will be needed. Therefore South African retail companies would need to stay abreast of such developments, especially when dealing with the brand conscious Nigerian consumer. Seasonality will also suggest that South African retail companies would have to appreciate customers’ expressed and latent needs and develop necessary solutions for those needs.
From a clothing point of view, South African retail companies would have to address styling, branding, sizing and fashion trends needed for the Nigerian industry. Furthermore, South African retail companies would need to standardise ranges of products tailored to the local market within a competitively priced segment, which is received as products of fair value in Nigeria.
5.9.6 Forecasting systems and reporting systems
The study supported the use of forecasting and reporting systems for South African retail companies in Nigeria. The findings found that these systems were critical in- store challenges that companies needed to address. From an operational point of view, retail companies would need to address such systems in order to curb the supply chain inefficiency in the country, inventory management tools needed and the
121 access to standard recipes. This system would be vital for retail stores who manage their bakery and delicatessen differently, as outdated stores would have ordered ingredients based on store operative estimates (Red Prairie, 2010). Such systems will benefit the company’s ability to forecast, track sale patterns and promote transparency.
Furthermore, forecasting and reporting systems will aid the company’s operational efficiency and brand loyalty. Forecasting and reporting systems will enable the tracking of perishable goods in terms of freshness, wastage and the quality of the products. Therefore, branches will have the ability to provide freshness, markdowns and transparent information on product availability to its consumers. With supporting forecasting and reporting systems, branches will be able to have system flexibility and quick responsiveness for its customers (Red Prairie, 2010).
5.9.7 Local internal programmes
The research supported the use of local staffing initiatives in order to support the company’s long term investment strategy in Nigeria. South African retail companies will stand to benefit greatly from employing and training local staff in Nigeria. They will also be better suited to understand the local customers, language, and business environment in Nigeria. This move will be of a great importance for the diverse Nigerian customer base. Companies will also stand to benefit, perhaps achieving broader localisation in the retail space. Therefore, companies would need to develop local internal programmes in order to compete in Nigeria and benefit from the inexpensive workforce.
5.10 Further research
By analysing the study, the possibility of further research was identified. A potential study on a large sample of companies across different countries could add value to understanding the theory concerning mode of market entry and operations in the Nigerian retail space. This type of further research could provide insight into the challenges and best practices faced by various multinational companies entering Nigeria. Further research could compare the different kinds of retailers (online retailers, food and clothing) with each other.
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In addition, further research could consider the effect of the entry mode choice on the business’s operations and eventual profitability. This type of study would be particularly interesting when comparing entry mode strategies and how successful they are in relation to a company’s sustainability and growth in the host market. A specific study on the cultural distance between the host country and the company’s domestic country and the effects it may have on entry strategies may also be explored for further research. This project will enable the study to consider the threat of liability of foreignness which the incumbent company could face in the host country.
Taking into consideration of the fact that the Nigerian retail industry is growing every year, the limited number of retail companies will soon increase with competition looming. Therefore, as the market expands and governmental policies change, further research could be explored on the effects that the institutional changes have on entry strategies and the characteristics of the existing retail companies in Nigeria.
Potential research could also be explored by applying this same study to other emerging African markets. This study will be useful in determining influential factors on the mode of entry strategies for retail companies in emerging African markets. A comparison of the various studies could be helpful in constructing a theory on the mode of entry strategies for multinational retail internationalisation in Africa. The findings of such a study could be extremely beneficial for academics and the executive management of retail companies.
5.11 Conclusion
Nigeria’s growing economy and strong demographic profile still provides an attractive destination for South African retail companies. Notwithstanding the drop in oil price and weakening of the Nigerian currency, the expansion of the retail space in Nigeria and the lifting of prohibited goods has been a welcomed development for South African retail companies. The study showed positive results regarding South African companies in Nigeria and the long term benefit in the country once the market conditions settle.
The findings extracted from the chapter enabled the researcher to identify the modes of market entry and strategies for South African retail companies in Nigeria. This
123 study has presented an analysis and a strategic framework for the mode of market entry and how South African retail companies can succeed in Nigeria. The various challenges, competitive factors and best practices were also discussed throughout the findings, conclusion and recommendations of the research sections and provided a finer assessment of the data analysed.
The study revealed that work needs to be undertaken on Nigeria’s weak institutional structures, which could magnify the information asymmetry of companies with local partners. The rule of law and the protection of intellectual property needs to be protected in order for South African retail companies to expand their reach. The absence of established retail businesses, the asymmetry of information, the lifting of import bans and exchange control regulations are compelling reasons for the use of Wholly Owned Subsidiary entry strategy for South African retail companies in Nigeria. Furthermore, with another successful democratic election process in Nigeria, the study equally revealed that the lack of established retail companies to partner with also influenced the use of Wholly Owned Subsidiary entry strategy.
The triangulation of the qualitative and quantitative results reinforced the study, as it made the findings clearer when the combination of the factors was considered. The qualitative findings provided empirical evidence from experienced retail employees in Nigeria. Moreover, the quantitative findings provided a perspective from South African retail companies in Nigeria, offering insight into the present market entry modes to competitive factors, to operational challenges ranging from procurement, inventory, technology and innovation, distribution, product and in-store to external barriers and best practices.
In closing, this study presented an opportunity for further research by providing a broad understanding on the modes of market entry and strategies for South African companies in Nigeria. The study called for an in depth understanding of the expropriation of funds, environmental challenges such as the lack of power/energy, infrastructure constraints, the establishment of entities and permits and the lack of supporting data for market entry. In relation to the country specific advantages and competitive factors, this study provided a compelling argument for the high potential of the Nigerian retail industry. Finally, this study highlighted the effect of the
124 speed/timing of entry and the use of aggressive expansion in untapped territory, which could be translated into pioneering advantages.
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Annexure A: University cover letter
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Annexure B: Research questionnaire
WELCOME
You are invited to contribute to a study of the new market entry strategies for South African Retail companies expanding into Nigerian markets. This research forms part of an M.Com research programme at University of Johannesburg, South Africa in order to fulfil degree requirements.
ANONYMOUS PARTICIPATION
This questionnaire is completed anonymously. You do not need to mention your name or provide any type of information that identifies you. The demographic data required will be used to determine best practices of Market entry strategies of South African Retail companies entering Nigerian markets only.
VOLUNTARY PARTICIPATION
Your involvement in this research study is completely voluntary. If you feel at any stage that you don’t want to answer questions included in the questionnaire or to contribute to this research study you are welcome to suspend participation. It is important to know the results of this research are confidential.
NO INDIVIDUAL BENEFIT OR LOSS
Information gathered will be treated confidentially and will have no bearing on any person. All information gathered will be used for master degree study purposes only. Results of this research will become a product of the University of Johannesburg and can be made available on request. Should you have any queries or comments regarding this survey, you are welcome to contact me telephonically or e-mail me.
Your assistance in this regard is much appreciated.
Jonathan Katende
M.Com student
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INSTRUCTIONS
Thank you for taking the time to participate in our research. The questionnaire is divided into three parts and will take only a few minutes of your time. Please cross (x) the relevant block or write down your answer in the space provided.
Part A: Demographic Information
1. What is your age?
18-30
30-40
40-50
50-60
Above 60
2. What is your gender?
Female Male
3. What is your highest qualification?
Did not complete high school High school degree/equivalent Diploma Bachelor’s degree Honours degree Master’s degree PHD
4. What is your current position in your company?
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5. For how long has your company been in operation?
1- 10 years 11-20 years 21-30 years 31-49 years 50 and above years
Part B: External barriers to business growth
6. Below is a list of economic-based factors that could be considered barriers to the growth of a business. Indicate in Column A whether you have experienced any of the factors listed. Then indicate in Column B to what extent each of the factors you have experienced has been a barrier to the growth of retail businesses in Nigeria.
A: Have you B: To what extent has … been a experienced…while barrier to growth of your doing business in business? Nigeria?
Yes No Not a barrier Slight barrier Moderat e barrier Strong barrier Extremel y strong barrier Economic recession Inflation rate Interest rate Taxes and tariffs Foreign exchange rates Price fixing Lack of access to finance Low disposable income Lack of infrastructure
7. Below is a list of political-related factors that could be considered barriers to the growth of a business. In Column A indicate whether you have experienced each of the factors listed. Then in Column B indicate to what extent each of the factors you have experienced has been a barrier to the growth of your business.
141
A: Have you B: To what extent has … been a barrier experienced … to growth of your business? while in business?
y
Yes No Not a barrier barrier Slight Moderate barrier Strong barrier Extremel barrier strong
Political instability Labour legislation Government regulations Consumer protection Disruptive Union action
8. Below is a list of social-related factors that could be considered barriers to the growth of a business. In Column A indicate whether you have experienced each of the factors listed. Then in Column B indicate to what extent each of the factors you have experienced has been a barrier to the growth of your business.
A: Have you B: To what extent has … been a experienced… barrier to growth of your business? while in business?
Yes No Not a barrier barrier Slight Moderate barrier Strong barrier Extremely barrier strong Levels of unemployment Levels of illiteracy Levels of corruption Shortage of skilled labour Prevalence of HIV & AIDS
9. Below is a list of industry-related factors that could be considered barriers to the growth of a business. In Column A indicate whether you have experienced each of the factors listed. Then in Column B indicate to what extent each of the factors you have experienced has been a barrier to the growth of your business.
142
A: Have you B: To what extent has … been a barrier to experienced … growth of your business? while in
business?
Yes No Not a barrier Slight barrier Moderate barrier Strong barrier Extremely strong barrier Intense rivalry
Threat of new entrants in the market High bargaining power of the supplier High bargaining power of the buyer Threat of substitute of product or service Goods return policy
10. Below is a list of environmental-related factors that could be considered barriers to the growth of a business. In Column A indicate whether you have experienced each of the factors listed. Then in Column B indicate to what extent each of the factors you have experienced has been a barrier to the growth of your business.
A: Have you B: To what extent has … been a barrier to experienced … growth of your business? while in business?
Yes No Not a barrier barrier Slight Moderate barrier Strong barrier Extremely barrier strong Climate Change Water Security Waste Management Food Security Energy Management
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Part C: Market entry modes of South African Retail companies expanding into Nigerian markets
11. Below is a list of market entry modes that could be considered to enter Nigerian markets. In Column A indicate whether the option listed is used by retail companies to enter Nigerian markets. Then in Column B indicate to what extent each of the options is considered viable.
A: Are these B: To what extent is this option considered strategies to be successful? used by retail companies to expand to Nigeria?
Yes No Not a barrier barrier Slight Moderate barrier Strong barrier Extremely barrier strong Mergers & acquisitions Joint ventures Licencing Franchising Niche marketing Wholly-owned subsidiaries Diversification Cost Leadership
12. Below is a list of market entry modes that could be considered when entering the Nigerian market. Indicate the level of initial capital investment needed for South African retail companies entering the Nigerian markets?
Low Medium High Mergers & acquisitions Joint ventures Licencing Franchising Wholly-owned subsidiaries
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13. Is there supporting data when considering successful market entry for South African retail companies in Nigerian: Indicate whether the options listed are influential for South African retail companies entering the Nigerian markets?
Not all Slightly Somewhat Very Extremely influential influential influential influential influential GDP Growth ( Gross Domestic Product) PPP (Purchasing Power Parity) Unemployment Rate Retail Industry sales Expenditure levels Population Growth Real exchange rate Limited data
14. Below is a list of market entry mode factors that could be considered when entering the Nigerian market. Indicate whether the options listed are influential for South African retail companies entering the Nigerian markets?
Not all Slightly Somewhat Very Extremely influential influential influential influential influential Upfront investment (financial and managerial) Speed of entry Market penetration Control of Market (customer Knowledge) Political risk exposure Technological leakage (information asymmetry) Managerial complexity Return on Investment (ROI) Timing and long term vision
15. To what extent do you think each of the following trade regulations and standards determine successful market entry modes for South African retail companies in Nigeria?
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Not all Slightly Somewhat Very Extremely influential influential influential influential influential Import Tariffs Trade Barriers Import Requirements and Documentation Nigerian import Controls Labelling and Marking Requirements Prohibited and Restricted Imports Customs Regulations and Contact Information Trade Agreements Merchandise Standards
Part D: Competitive factors influencing successful market entry of retail companies in Nigeria
16. To what extent do you think each of the following competitive factors determine successful market entry of South African retail companies in Nigeria?
Not all Slightly Somewhat Very Extremely influential influential influential influential influential Diverse product range Low pricing of products Discount initiatives Location of outlets Effective promotional strategies Customer relationships Well-developed infrastructure Brand awareness/preference Availability of public transport Use of advanced technologies Online purchasing
17. To what extent do you think local employees/partners play a part in the company’s competitiveness with regards to successful market entry in Nigeria?
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Not all Slightly Somewhat Very Extremely influential influential influential influential influential Language Barrier Local Stakeholders management Marketing Cost Effectiveness Network base Knowledge of the local environment Lobbying Operational Effectiveness Localisation Culture Government Regulations
18. To what extent do you think each of the following country specific advantages is when considering market entry for South African retail companies in Nigerian?
Not at all Low Moderately Important Extremely important importance important important GDP growth Market size private consumption expenditure Retail industry development Brand awareness Growing Middle class Returning diaspora Housing Development
19. Do you think the level of education/training in the following positions is needed for a successful market entry of South African retail companies in Nigeria?
Not all Slightly Somewhat Very Extremely influential influential influential influential influential HR management Corporate Communication Technology and innovation Procurement Inbound Logistics Production Operations Outbound Logistics
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Marketing Service
Part E: Operational challenges of South African retail companies entering Nigerian markets.
20. Below is a list of external operational challenges that may prevent successful entry of South African retail companies to enter Nigerian markets.
Not at all Low Moderately Important Extremely important importance important important Energy and power supply Road & transport network Effective banking services Workable computer systems Government bureaucracy Mobile network services Access to promotional media
21. Below is a list procurement procedure challenges that may prevent successful entry of South African retail companies to enter Nigerian markets.
Not at all Low Moderately Important Extremely important importance important important Corruption Suppliers Raw materials cost Labour wages Fuel price volatility Quality assurance programmes Planning/scheduling with vendors Ethical sourcing
22. Below is a list inventory management challenges that may prevent successful entry of South African retail companies to enter Nigerian markets.
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Not at all Low Moderately Important Extremely important importance important important Order intake systems Product handling Inventory turns Port delays Optimizing Distribution Networks Storage facilities Electricity shortage Security Warehouse floor layout
23. Below is a list of technology and innovation challenges that may prevent successful entry of South African retail companies to enter Nigerian markets.
Not at all Low Moderately Important Extremely important importance important important Omni channel management systems Mobile Payments platforms Internet Speed Credit Payment facilities E-commerce Digital Rewards Programmes Integrated information systems In-store analytics
24. Below is a list of distribution processes challenges that may prevent successful entry of South African retail companies to enter Nigerian markets.
Not at all Low Moderately Important Extremely important importance important important Managing Reverse Logistics Inventory Storage facilities Transportation Communication Unitization and packaging Freshness of products
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Cross Docking Delivery time
25. Below is a list of product challenges that may prevent successful entry of South African retail companies to enter Nigerian markets.
Not at all Low Moderately Important Extremely important importance important important Adaptation of marketing Product pricing Brand loyalty Localised products Product segmentation Promotions Distribution (place)
26. Below is a list of in-store challenges that may prevent successful entry of South African retail companies to enter Nigerian markets.
Not at all Low Moderately Important Extremely important importance important important Poor reporting Business intelligence System flexibility Responsiveness to business requirements Stock figures (data accuracy) Forecasting system Wastage
Part F: Best practices for South African retail companies entering Nigerian markets.
27. Below is a list of South African best practiced retail companies. Indicate whether the options listed can be regarded as influential best practices in new entrant strategies for South African retail companies entering the Nigerian markets?
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Not all Slightly Somewhat Very Extremely influential influential influential influential influential Shoprite Woolworths Pep Stores Truworths Foschini Mr Price Game
28. Below is a list of best practice factors that may provide successful entry for South African retail companies in Nigerian. Indicate whether the options listed can be regarded as influential best practices for South African retail companies entering the Nigerian markets?
Not all Slightly Somewhat Very Extremely influential influential influential influential influential Governance Supply Chain and ordering Centralised structure First mover advantage Expat deployment Training/development Ownership and Control Research and Development Aggressive growth policy Buyer-supplier relationships Cost Leadership Differentiation
Thank you for your cooperation
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Annexure C: Interview questions
Please express your views briefly with regards to following questions.
1) What are the country specific advantages that make Nigeria an attractive choice for investment?
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2) What are the barriers that prevent South African retail companies from entering Nigerian markets?
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3) How did government policies and regulations impact on your market entry strategy in Nigeria?
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4) Which market entry strategies are most successfully used by South African retail companies when entering Nigerian markets, and why?
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5) What supporting data is available when considering the modes of market entry?
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6) Are there any differences in your opinion, between market entry strategies in Nigeria to other regions/countries across Africa?
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7) To what extent did you need to tailor your product and service offering for market requirements in Nigeria?
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8) What human resource policies were put in place for recruitment, deployment, training and development of local talent?
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9) What are best practices that can be used when entering Nigerian markets?
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10. How can these best practices be used to develop a Strategy Framework for entering Nigerian retail markets?
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