Nigeria: Trung Nguyen’s New Market?

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NIGERIA: TRUNG NGUYEN’S NEW MARKET?

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Contents

Executive summary        

Company background        

Reasons to enter Nigerian market        

Nigeria PEST analysis        

Political        

Economic        

Social        

Technological        

Nigerian coffee industry analysis        

Entry mode        

Conclusion        

References        

Executive summary

This business report will introduce Trung Nguyen coffee - a successful Vietnamese coffee company and give an overview about the situation that the company will internationalize into a new potential market - Nigeria. The report will give the reason for Trung Nguyen coffee to internationalize, in - depth analyses about PEST of Nigeria and the coffee industry in Nigeria as well as the entry mode should be used to enter the new market.

Company background

Trung Nguyen coffee is a Vietnamese company that was established in 1996 and involved in the production, processing and distribution of coffee. Trung Nguyen is a big domestic coffee brand within Vietnam and the company has exported its products to more than 60 countries all over the world such as US, UK (TrungNguyen 2015). There are a variety of Trung Nguyen’s products such as fresh coffee, instant coffee, roasted coffee, bean coffee, drip coffee and also weasel coffee (TrungNguyen 2015). In addition, the company also invested in the consumer foodservice industry and has a national distribution network of over 1,000 coffee shops all around Vietnam (Euromonitor 2015h). In Vietnam, consumers can easily reach to the products thanks to the company’s coffee shops and also retail supermarket and independent small grocers. In terms of production, Trung Nguyen has 4 factories that produce products with international standards (Euromonitor 2015h). According to Euromonitor (2015h), Trung Nguyen was ranked as the third position in coffee in 2014 with 19% of retail value sales.

Reasons to enter Nigerian market

There are some of the fundamental reasons for Trung Nguyen to internationalize and build its image to Nigeria based on Dunning’ reasons. First of all, Market Seeking Motive indicates that the multinational enterprise exploits the possibilities and the opportunity from the market to develop the performance and productivity of the business. To illustrate, customers’ demand for coffee in Nigeria is high to attract a wider range of customers and promote the image of Trung Nguyen. As a result, Nigeria still has a good market as an opportunity for Trung Nguyen to exploit and develop its brand name based on the Market Seeking Motive, therefore, this country is one of the most efficient targets for Trung Nguyen to operate. Otherwise, according to Index Mundi (2015), the population in Nigeria is ranked as the 7th largest in over the world and the dominated group is from 20 to 60 years old (approximately 58% in 2015). In addition, KTAR (2015) claims that coffee consumption is concentrated on the age from 20 to more than 60 years old. This would be a good opportunity for Trung Nguyen to internationalize in Nigeria. Furthermore, Nigerians tend to utilize coffee to reduce their working pressure and adapt with the Western behavior (Euromonitor 2015c)

In order to reduce the tax payment and other costs from regulations, Trung Nguyen might consider some of the basic laws in Nigeria to have some advantages that relate to taxation and tariffs, based on the Efficiency Seeking Motive. According to Vittucci Marzetti (2008), Efficiency Seeking Motive is considered as taking advantages of trade agreements in other countries for business’s benefits while internationalizing. For instance, there are many fundamental taxation that businesses have to follow in the foreign country such as paying capital gain taxes, company income taxes and even personal income tax. However, from the benefits of the trade agreement, businesses can skip some taxes and lower the operating costs. Fortunately, Euromonitor (2015c) points out that Nigeria has become a member of WTO and TIFA, which would be an advantage for Trung Nguyen when enter Nigeria’s market since these agreement will help reduce trade barriers.

Nigeria PEST analysis

Political

Political instability has been a significant barrier in Nigeria’s business environment development. Based on Maplecroft (2014), although Nigeria ranked 18th in the top 20 Growth Market, this country ranked 14th in the Political Risk to investors. Nigeria also ranked very low 195th out of 203 countries in the World Bank’s Political Stability and Absence of Violence Index 2013 (Euromonitor 2015a). Ethnicity and religious bigotry are the source of the violence in this young democracy system. According to Mike (2015), back in 1967, the “Federal Republic of Nigeria” suffered its first Civil War. In present time, despite the fact that the war was long gone, conflicts between political parties and some minority ethnic groups are still intense. Nigeria becomes indiscipline, political unrest over the leadership position and the oil production in the Niger Delta.

Corruption is also a severe issue of Nigeria. According to Transparency International (2014), in terms of Corruption Perception Index (CPI), Nigeria ranked 136th out of 175 countries, which indicated an extremely high level of power abuse for personal gain. Consequently, corruption increases breach of contract’s risk and higher cost of business because of the extra illicit payments. Moreover, the business environment becomes unfair since the briber firms have more advantages in their field.

Based on Doing Business (2015)’s measures, Nigeria ranked very low: 170th out of 189 economies in Ease of Doing Business. More specifically, in Nigeria, it takes 28 days, 31.1% cost (% of income per capita) to start a business; 116 days to deal with construction permits; corporate income tax is 30%, VAT is 5% and the amount of taxes on profits paid by the business as a percentage of commercial profit is 21.6% (Doing Business 2015). Low rank indicates the inefficient implementation of policies and regulations to promote investors.