MNB Assignment 2 Report Semester 1 written by lecdalton www.stuvia.com

MNB Assignment 2 Report Semester 1 written by lecdalton S - The study-notes marketplace Assignment 2 | Semester 1 | 2022 REPORT UNIQUE NUMBER: 816806 Principles of Global Business Management MNB3701 S - The study-notes marketplace Page 2 of 18 DECLARATION Note that the portfolio or any part thereof will not be marked if this declaration has not been completed. Declaration of own work I hereby declare that the material which I now submit for this assessment is entirely my own work and has not been taken from the work of others. Work that was constructed from other sources has been duly referenced. Full name and surname: Student number: Signature: (electronic/digital handwritten signature/initial[s] and surname) S - The study-notes marketplace Page 3 of 18 1. Executive summary ......................................................................................... 4 2. Literature search .............................................................................................. 5 3. Background ..................................................................................................... 6 4. Formal institutional frameworks ....................................................................... 8 4.1. Overview ............................................................................................... 8 4.2. Evaluation of the determinants to the success or failure of an MNE in a formal institution and key implications for management action of formal institutions ............................................................................................. 9 5. Informal institutional frameworks ................................................................... 10 5.1. Overview ............................................................................................ 11 5.2. Evaluation of the determinants to the success or failure of an MNE in an informal institution and key implications for management action of informal institutions ............................................................................. 13 6. Conclusions ................................................................................................... 16 7. Bibliography ................................................................................................... 17 TABLE OF CONTENTS S - The study-notes marketplace Page 4 of 18 This paper will discuss the Multinational Enterprises (MNE’s) as well as the formal and informal institutions and the frameworks that govern them. A multinational firm or MNE is an enterprise that engages in foreign direct investment and owns and controls value adding activities in more than one country (Peng & Meyer 2019). It typically has multiple facilities across the globe, derives a substantial portion of revenues from foreign operations, manages subsidiaries with a common strategic vision and resource pool and often places foreign nationals or expatriates in key management posts.” (Erwee, 2017: 176). The paper will continue to evaluate the aspects of the workings of formal and informal institutions that are key to the success or failure of the MNE, among other things, the main objective of this report Identify and evaluate the determinants of the success or failure of operating the MNE in the African context. Overall, the success and failure of a firm around the globe are, to a large extent, are determined by its ability to understand and take advantage of the different rules of the game. In other words, how firms play the game and win (or lose), at least in part, depends on how the rules are made, enforced, and changed. This calls for firms to constantly monitor, decode, and adapt to the changing rules of the game in order to survive and prosper. As a result, such an institution-based view has emerged as a leading perspective on international business. Here, I focus on formal institutions (such as political, legal, and economic systems) whereas I will upload an article concerning informal institutions. (Hint: Write the executive summary only once you have completed all of the other required sections of the first report) EXECUTIVE SUMMARY S - The study-notes marketplace Page 5 of 18 Literature search is a systematic and well-organised search from the already published data to identify a breadth of good quality references on a specific topic (Bryman et al., 2014). The reasons for conducting literature search are numerous that include drawing information for making evidence-based guidelines, a step in the research method and as part of academic assessment. However, the main purpose of a thorough literature search is to formulate a research question by evaluating the available literature with an eye on gaps still amenable to further research (Bryman et al., 2014). This segment of the paper provides a description of the literature search undertaken in writing of this report, the articles used in this report were from 2010 – 2021. Below is a breakdown of how the search was conducted: Search terms used = Challenges of Doing Business in Africa, African Entrepreneurship, Market entry into Africa, The formal and informal institutional framework, evaluating the determinants of formal entrepreneurship, Capital market development in sub- Saharan Africa The databases = Cochrane Library, Embase, Sabinet, Scopus, Academia, IEEE Xplore, Directory of Open Access Journals, JSTOR Search engines used = Google The results of your search = about 377 000 results Number of articles read = 25 Articles Number of sources did you considered relevant and useful in completing the first report = 15 LITERATURE SEARCH S - The study-notes marketplace Page 6 of 18 “A multinational firm or MNE is an enterprise that engages in foreign direct investment and owns and controls value-adding activities in more than one country. It typically has multiple facilities across the globe, derives a substantial portion of revenues from foreign operations, manages subsidiaries with a common strategic vision and resource pool and often places foreign nationals or expatriates in key management posts.” (Méon & Sekkat 2015:20). Founded in South Africa in 1895 as South African Breweries (SAB), SABMiller is currently the world’s second-largest beer company measured by revenues (behind the Belgian-Brazilian Anheuser-Busch InBev). In 1999, SAB moved its headquarters to London. In 2002, SAB changed its name to SABMiller after acquiring an American brewer, Miller. SABMiller’s brands include Fosters, Grolsch, Miller, Peroni Nastro Azzurro, and Pilsner Urquell. While SABMiller operates in 75 countries, lately it has found that its fastest-growing market is its birthplace: Africa. Among some 40 African countries in which SABMiller sells beers, Nigeria has stood out. Nigeria has the largest population (170 million) in Africa— approximately one in five of Sub-Saharan Africa’s 930 million people lives here. This paper will focus on Nigeria as the host country, Nigeria is also the largest beer market after South Africa. Further, the Nigerian population is young and growing at an annual rate of 2% - 3%. Nigeria is attractive to SABMiller not only because of its size, but also because of its influence Nigerian music and movies are visible throughout Africa. A win in Nigeria may influence consumer behavior elsewhere on the continent. However, Nigeria is not an easy market to crack, because Guinness (owned by a British multinational Diageo) and Nigerian Breweries (owned by a Dutch giant Heineken) had been strong incumbents prior to SABMiller’s entry. In 2009, SABMiller entered Nigeria, not by going after Lagos, the country’s largest city where Guinness and Nigerian Breweries would definitely retaliate if attacked. Instead, SABMiller went to other cities away from Lagos (Igwe, Onjewu, & Uguru 2018:5). It acquired a rundown brewery in Port Harcourt and another one in Ilesha. In 2012 it built a brand new, Greenfield plant in Onitsha. SABMiller developed a new beer specifically for the Onitsha plant: Hero. Its bottle features the rising sun, an icon of the local Igbo BACKGROUND S - The study-notes marketplace Page 7 of 18 people. Undercutting the competitors, a 650 ml bottle of Hero sells for US$1, whereas a Guinness costs US$1.67 and a Star (from Nigerian Breweries) US$1.33. In Nigeria, SABMiller not only has to fight off rivals, but also deal with a traditional substitute of its factory-made beer: home brews. But home brews can be unsafe or even toxic. To persuade the bottom end of the market to get away from home brews, SABMiller has also brought in chibuku, an even cheaper brew developed in Zambia that sells for half of Hero’s price. (Hint: To delimit the scope of your search and reduce the complexity of your search for information pick only ONE host African country. In my case I chose Nigeria as a host country, there are many African countries to choose from, you also need to choose your MNE, as you can see from the above example, I chose to use SABMILLER, there are many other MNE’s that you can use, e.g. Shoprite, Coca Cola, DSTV Multichoice, Vodacom and MTN. S - The study-notes marketplace Page 8 of 18 4.1. Overview According to Méon and Sekkat (2015:02), the term “institutional framework” refers to a set of formal organisational structures, formal & informal institutions governing individual and firm behaviour. Formal institutions are formal rules of doing business in each country, this includes laws, regulations and rules that are set by authorized bodies (Peng & Meyer 2019:29). On the national level, this is normally the government, although the authority to set rules may have been delegated to specific bodies within a country. Peng and Meyer (2019:29) further mentions that, the three spheres of countries’ national institutional framework include the following: political systems, economic systems and legal systems. i. Political systems A political system refers to the rules of the game on how a country is governed politically (Peng & Meyer, 2019). Businesses interact with political systems only indirectly, yet business people need to understand the political system because it shapes the commercial rules and regulations for business, and it is a major source of risk. At a broad level, there are two primary political systems: (1) democracy and (2) autocracy. ii. Economic System An economic system refers to the rules of the game on how a country is governed economically (Peng & Meyer 2019). The theoretical prototypes are a pure market economy and a command economy, yet between them exists a wide variety of capitalism. iii. Legal System When you are living or doing business abroad, you are subject to the law of the country in which you operate; your home country’s rules do not apply. Thus, you will face a different legal system with its own laws and processes by which these laws are FORMAL INSTITUTIONAL FRAMEWORKS S - The study-notes marketplace Page 9 of 18 enacted and enforced (Peng & Meyer 2019). By specifying the dos and don’ts, a legal system is the cornerstone of formal institutions. 4.2. Evaluation of the determinants to the success or failure of an MNE in a formal institution and key implications for management action of formal institutions i. Political system While Nigeria is exciting, it is also challenging. Political risk is not far away. Boko Haram, a fundamentalist Islamist group, kills innocent people who engage in “un- Islamic” practices such as drinking alcohol, resulting in hundreds of deaths. In April 2014, it kidnapped 276 schoolgirls. Health risk is also significant. In 2014, the outbreak of Ebola in western Africa spread to Lagos, which was later contained. The rules of the game for business can change quickly and for the worse. Land is expensive and disputes are frequent, making it hard to construct new factories or offices. Power outage is frequent. Transportation is perilous. Nigeria has one of the world’s highest rates of road deaths. Shipping beer to remote areas, thus, is both costly and dangerous. In addition to the hazards above that every company doing business in Nigeria must confront, SABMiller has learned an important lesson the hard way. That is: be even more careful about what you are getting into. It succeeded in other African countries by acquiring struggling breweries and fixing them up (Asongu & Odhiambo 2019:3). Its Port Harcourt acquisition seemed to make sense. But it soon had to confront back pay and unpaid invoices that its pre-acquisition due diligence failed to uncover. In Africa, the business community has a vivid phrase to describe the necessary learning that is needed to overcome the initial challenges: paying school fees. “You have to persist through the school-fees stage and not lose your nerve,” noted one executive. In other words, persistency pays. S - The study-notes marketplace Page 10 of 18 ii. Economic system According to Oguji and Owusu, (2021:16), the GDP of Nigeria was worth around $448.10 billion in 2019. However, the forecasts reveal that the GDP in 2021 is expected be far lower than that in 2019. Nigeria is one of the largest producers of oil in the world. However, it should reduce the over-reliance on oil industry and diversify the economy. It also needs to improve its infrastructure. A good thing is that a number of sectors e.g. education, retail trade, entertainment, and solid minerals are rapidly growing in the country. Nigeria exports crude petroleum, petroleum gas, cocoa beans, gold, and some other commodities to countries such as the USA, India, Spain, South Africa, and France. Its main imports such as ships, cars, wheat, and packaged medicaments come from countries such as China, the Netherlands, India, South Korea, and Luxembourg (Kanga, Tyson & Raga, 2021). Nigeria is very good place to do business in terms of return on investment (ROI). It is a country that is abundant with cheap labour and has a huge domestic consumer market. Likewise, relatively low corporate income tax rates (CIT) also go in favour of business. For instance, the CIT rate is 0% for small companies that generate NGN 25 million or less a year, while 20% for medium size companies that generate greater than NGN 25 million but less than NGN 100 million a year. The CIT rate is 30% for large companies that generate greater than NGN 100 million a year (PwC, 2021). It is relevant here to mention that the Naira is the official currency of Nigeria. While economic growth in most instances was ahead of last year, the economic environment this year formed part of what has become a prolonged and disruptive period of economic growth as a result of recurring waves of infection. This has led to increased unemployment and constraints on people’s ability to afford food and basic necessities. SABMiller had to re-brand packaging of the brand and favourable circumstances, in a struggling economy with consumers wanting to trade down, SABMiller managed to increase Trophy’s share of the economy category from 7% in 2020 to 14% in 2021 when the category grew by 45%, which was the key driver in the company becoming the third biggest player in the Nigerian market, albeit with a distant 5% market share. S - The study-notes marketplace Page 11 of 18 INFORMAL INSTITUTIONAL FRAMEWORKS iii. Legal system The relationship between employees and employers must be in line with the Nigerian Labour Act, looking at SABmiller, they are within the parameters of this requirement Foreigners can buy land properties through a company or entity registered in the country. Many analysts argue that the country needs to do more to deal with human rights violations. It also needs to allocate more resources to the justice system to reduce delays in legal processes. 5.1. Overview Helmke & Levitsky (2006) define informal institutions as socially shared rules, usually unwritten, that are created, communicated and enforced outside officially sanctioned channels. Informal institutions deal with rules that are not formalised, such as norms, values and ethics. When formal institutions are not securing the effective functioning of the economy, then informal institutions may substitute them. Institutional frameworks are relevant for the reduction of uncertainty; therefore, uncertainty is lower in countries with strong formal institutions compared to countries with underdeveloped institutional structures. As a point of note, informal institutions play a larger role in reducing uncertainties where formal institutions fail. These informal institutions can serve as a framework for market transactions when formal institutions and markets fail (Abubakar, Aina & Alshuwaikhat, 2020). Informal institutions have been incorporated into FDI research by several scholars, including Claudia Williamson (2009) who describes how informal and formal institutions interact and provide for economic progress. Makhdoom et al., (2021) found that informal institutions strongly affect economic development. In contrast, formal institutions only seemed to be a determinant of economic development when embedded in the informal institutional framework. Informal institution is made up of the following headings: S - The study-notes marketplace Page 12 of 18 i. Culture According to Kanga, Tyson & Raga, (2021), culture is defined as a collective phenomenon that is shared by people who live in the same social environment, which is where culture is learnt. It is the collective programming aspect of the mind that distinguishes the members of one group from another. Further, there is no connection between culture and nation states. Within a country, culturally diverse groupings may exist. ii. Language competencies and cultural interactions Language is a system of shared meanings that enables people to communicate effectively (Kanga, Tyson & Raga, 2021). Further, meanings in a language are often complex and contextually embedded. In other words, the meanings in one language may not transfer well from one language to another. Translations and interpretations made from one language to another are often approximations of meanings (Peng & Meyer, 2019:68–69), rather than precise interpretations. Consequently, language differences pose a barrier between people speaking different languages. iii. Religions shaping culture Religion is a significant source of differences in norms and values in a society. Religious differences, more than any other difference, elicit strong emotions; hence, religious differences pose a challenge for organisations. For example, in some countries, religion, specifically religious events or festivals, create opportunities for businesses. Religious practices, in some countries, affect daily and weekly routines, and religious beliefs influence how people perceive themselves and how events or actions of others are interpreted around them. The challenge is that, in some societies, an item or activity can be treated as taboo and may elicit emotional, violent responses. Hence, religious differences need to be treated with respect (Peng & Meyer, 2019:72– 73). iv. Ethics Ethics refer to the principles, standards and norms that govern the behaviours of individuals and organisations. Ethics do not always form part of informal institutions, but may be reflected in formal laws and regulation. There may be overlaps between what is considered legal and what is ethical. However, gaps exist between what is S - The study-notes marketplace Page 13 of 18 considered legal and what is unethical. International businesses often develop a code of conduct to bridge this gap and give clear guidelines on making ethical decisions. This code of conduct primarily applies to employees, but is often extended to suppliers, franchise relationships and relationships in which others use the brand of an organisation. The challenge in developing such a code of conduct is that, what is considered as ethical in one location, may not be considered ethical in another. How do internal businesses then navigate an international ethical minefield? An international business may either follow the ethical relativism or ethical imperialism school of thought. 5.2. Evaluation of the determinants to the success or failure of an MNE in an informal institution and key implications for management action of informal institutions This focus on performance, more than anything else, defines the strategy field (Eifert, Gelb & Ramachandran, 2018). All three major perspectives that form the strategy tripod ultimately seek to answer this question. The industry-based view posits that the degree of competitiveness in an industry largely determines firm performance (Porter, 1980). The resource-based view suggests that firm-specific capabilities drive performance differences (Barney, 1991). The institution-based view argues that institutional forces also provide an answer to differences in firm performance. As firms increasingly venture abroad, it is difficult to imagine firms that fail to do their “homework” by getting to know the various formal and informal rules of the game in overseas markets will emerge as winners. This point is obviously crucial for firms doing business internationally. However, firms doing business domestically also need to exercise significant due diligence regarding the rules of the game to ensure good performance; otherwise, firms can be burned in their own home country. In October 2008, India’s Tata Group, developer of the critically acclaimed Tata Nano automobile that would retail for just $2,500 (the cheapest car in the world), painfully scratched its plans to manufacture the Nano in West Bengal (Economist, 2018). S - The study-notes marketplace Page 14 of 18 Evidently Tata’s plans, which would generate thousands of jobs in West Bengal, failed to take into account the hostile state government and farmers who resented the loss of farmland for the Nano factory. Overall, although different schools of thought often debate with each other, the true determinants of firm performance probably involve a combination of these three-pronged forces, thus calling for a strategy tripod perspective (Peng and Meyer, 2019)). In a first comprehensive quantitative test measuring the impact of industry-based, resource-based, and institution-based variables on firm strategy and performance, Gao et al. (2009) found that institution-based variables assert significant effects on exporters’ strategy and performance “above and beyond the impact of firm competencies and industry factors.” Overall, the institution-based view complements the existing industry based and resource-based views to collectively sustain a strategy tripod. In summary, these four questions represent some of the most fundamental puzzles in strategy. While other questions can be raised, they all create in one way or another to these four. The institution-based view adds significantly new insights to these questions by bringing institutions to the forefront of the research agenda (Ingram & Silverman, 2015; Peng et al., 2016). i. Language Language diversity has exacerbated the amount of ethnic rivalry in Nigeria. Apart from the 250 or more indigenous languages, English and “Nigerian Pidgin” play a significant role in communication among various ethnic groups. English is the official language of Nigeria and is spoken most frequently in the workplace and in schools, this gives SABMiller a smooth ride in their business operations Young Nigerians is first introduced to English in elementary schools, and it is used almost exclusively in secondary schools and universities. “Pidgin” is spoken among people with little or no formal education. Circumstances force many Nigerians to become multilingual. Business activity throughout the country and across ethnic groups force people to learn the languages of the groups with whom they trade. The Hausas comprise slightly over one-fifth of the nation’s population. They are the largest ethnic group. As mentioned, they are extremely traditional and conservative and refuse to study English. Their dominant population makes them an inevitable trading partner within the country. Hence, if you are going to trade with them, you must S - The study-notes marketplace Page 15 of 18 learn their language. It is no surprise that Southerners usually know the language of the Hausas as a second language. ii. Culture The laws in Nigeria are most likely inclined to show a more conservative and traditionalist slant due to the dominant influence of the Hausas on government policy. Therefore, we see a very male-dominated and familial business environment in Nigeria. The more pragmatic Yorubas and Ibos have been more adaptable to western influence and have demonstrated greater industriousness than that of the Hausas. These competing styles have contributed to tensions in the evolution of business in this nation. Indeed, these groups in Nigeria affect the political and industrial economy in their respective ways, and understanding the interplay of these groups with the management and labour issues that arise is critical for understanding the dynamic business culture of Nigeria. In light of these complexities, a communitarian business ethics presents both opportunities and risks. The risks are that the already existing insular communities can reinforce exactly the kind of problems warned of by theorists such as Keeley and Mayer. The opportunities are that a virtue ethic of business may be able to address businesses in a language that is familiar with them, but which extends the sense of community to members of the workforce in particular. Moreover, the emphasis on mediating rather than quarantining requires a sense of adaptation to the outside world rather than demonizing that world. Thus, making Nigerian business into mediating institutions may be a way to make them more responsible while simultaneously respecting their extant cultural identities. iii. Religion The two most prevalent religious groups in Nigeria are the Muslims in the North and Christians in the South. According to a 1973 census, roughly half of the population was estimated to be Islam, while just over a third were Christians. The remaining citizens belonged to smaller, indigenous religious sects. As in many western countries, Christianity in Nigeria is broken down into various denominations such as Catholic and Protestant. Within Protestantism, there are Methodist, Presbyterian, Lutheran, S - The study-notes marketplace Page 16 of 18 CONCLUSIONS Salvation Army, and many others. Most of the educated people of the South are Christians. Catholic missionaries have been very active among the Ibos in the South (Khavul, Bruton & Wood, 2019). Over the years, the Catholic Church has made education its primary mission, and the Church has played an important role in the education of the Ibos. Keeping in line with the traditionalist strictures of the North, Muslim leaders have heavily discouraged Christian missions to the North. Though there are divisions within Nigerian Islam ((Khavul, Bruton and Wood, 2019)), it remains the dominant belief among the people of the North (Khavul, Bruton & Wood, 2019). 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