1

THE EXPANSION OF CENTRICA PLC INTO NIGERIA

AN ANALYSIS OF STRATEGIC DECISIONS AND ACTIVITIES

BY

EHINOMEN REGINA OKAGBARE - STUDENT ID B00874404

BMG872 (CRN21433): Global Strategy Development and Implementation
Module Tutor: Ian Rogers
August 14, 2022
Word Count:3174
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TABLE OF CONTENTS

1.0 Introduction ……………………………………………………………………………3

1.1 Host Company Background …………………………………………………………3
1.1a Business and Geographic segments …………………………………………..3
1.1b Financial Performance ..…………………………………………………………4
1.2 Reason for Expansion…..….…………………………………………………..…… 5
1.21 Michael Porter’s Diamond Theory …..….………………………………………5

2.0 Internationalization strategy…………………………………………………………10

2.1Bartlett and Goshal’s Model……………………………………………………… 11

3.0 Analysis of Country of expansion …………………………………………………..12

3.1 PESTEL Analysis………….………………………………………………………..12
3.2 Porter’s Five Forces Model……………………………………………………… 13

4.0 Market Entry Strategy…………………………………………………………………15

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5.0 Possible Operational and Managerial Problems and

Recommended Solutions…………………………………………………………………17

References…………………………………………………………….……………………19

Appendix…………………………………………………………………………………….25

1.0 Introduction
According to Hill (2020), global expansion provides companies with the fortuity to boost
profits and profit growth rate through means that are not readily present in the home
market. Centrica PLC is expanding its reach in Africa to Nigeria, hence this paper will
critically analyze the reason for this decision including the location choice, the mode of
entry and possible setbacks, managerial and organizational complications in the new
environment and the tactical recommendations that will expel the issues

1.1 Host Company Background

Centrica PLC is a multinational utilities company which originated in Britain, it generates
and supplies natural gas and electricity including provision of home services such as
gas storage, installations, maintenance of energy related services and other domestic
services (MarketLine, 2022).

Although the company has a 200 years heritage, it was founded on 17 th of February
1997 following the division of British Gas PLC to form three different companies namely
Centrica PLC, BG PLC and Transco PLC. The sale and trading of gas, retail and
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services division including the North and South Morecambe gas fields production
operations were taken over by Centrica PLC (Centrica.com. 2022).

1.1a Business and Geographic Segments

According to Fortune.com (2021), Centrica ranked 458 on its Global 500 list of world
biggest companies with presence in United Kingdom, Ireland and Europe see Figure 2
below.

1.1b Financial Perormance

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The poor performance of Centrica over the years as shown in Figure 3 above, was
blamed on loss of customers (BBC News, 2016) devaluation of its assets (Thomas,
2017) price cap placed by the government on energy and dwindling gas prices
(Ambrose. 2020). Although the company made a loss in 2020 due to the impacts of
Covid-19, change in weather and low prices, it was a significant drop when compared
the loss made in 2019 (Lempriere, 2021). However, in 2021 the adjusted operating
profit grew by 44% (Blackburn and Smith, 2022) and according to Plimmer (2022), the
boost in profits was due to profits from its North Sea oil and gas activities and change in
weather conditions.
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The current financial performance of Centrica PLC shown in figure 4 signifies further
growth and for the first time since 2019 the company will pay interim dividends to its
shareholders (Centrica PLC, 2022)

1.2 Reason for Expansion

This report will now analyze the reason for Centrica PLC’s expansion to Nigeria using
Porter’s Diamond Model as theoretical framework. This framework will provide
understanding on how the United Kingdom and Centrica PLC have fashioned their
strategic approach to attain global competitiveness.

1.21 Michael Porter’s Diamond Theory

According to Harvard Business School Institute for Strategy & competitiveness (2022),
all businesses carryout their activities within territory where it originates and learns to
compete and by recognizing and developing the factors in the model that are
restrictions to productivity, competitiveness can be enhanced in different locations which
can lead to profitability.
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a) Demand Condition: This addresses the nature of United Kingdom’s demand for
electricity. The demand for electricity has been increasing in the UK since the 1990s to
2000s but due to the impact of the Covid 19 pandemic, in 2020 industrial demand for
electricity fell 4.7% to 281TWh while domestic use rose due to shift in seasons (Edward
es-Evans, 2021). In addition, by the January 2021 demand had risen to 28.03TWh from
2020’s figure though this was still lower than 2019’s demand figure of 29.33TWh. The
United Kingdom Statistics Authority (2021) states that since 1997, the total amount of
electricity distributed has increased steadily, peaking in 2005. The supply is now 22
percent lower in 2020 than it was in 2005, reflecting lower demand brought on by Covid-
19 impacts, increased energy efficiency including economic and climatic factors.

Furthermore, total electricity produced in the UK declined by 3.6 percent in 2020 when
compared to 2019, due to a fall in the demand for electricity caused by Covid-19
pandemic se Figure 8
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The future the electricity sector in the United Kingdom is a shift in policy to net-zero,
with a mission to reduce greenhouse-gas emissions by 2035 to 78 percent. This policy
has been engraved into law and it is at the heart of the UK governments green industrial
transformation and a more robust post Covid-19 economy Daly et al. (2022).
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b) Factor (input) Conditions: This is the availability of factors of production required to

compete in the electricity generation and distribution industry such as qualified personnel,
infrastructure, technological advances and funds (Porter, 1988). Qualified workers are readily
available in the United Kingdom energy industry according to the National Statistics, (2021),
although there has been a decline in employment in the energy sector since the 1980’s in 2020
employment in the industry rose by 2.3 percent with the electricity sector having the largest
share.

Electricity is generated from different sources and technologies in the United Kingdom
such as fossil fuels, nuclear reactors, renewable energy and importation when it is most
economical (Energy UK, 2022).
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A study by Blyth W. et al. 2020, states that the sources of finance available to the UK power
sector includes loans from commercial banks, infrastructure funds, institutional investors (Bonds
and Shares), direct investments, private equity and government grants and schemes.

c) Related & Supporting Industries: There are clusters of related and supporting industries in
the United Kingdom electricity generation and transmission industry who have international
presence see figure 12 below.
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d) Firms Strategy, Structure and Rivalry: The strategic objective of Centrica PLC after
startup was diversification and expansion which it tried to achieve through several
mergers, acquisitions, takeovers, contractual agreements and new investments
(MarketLine 2022). The company is currently focused on modernizing and simplifying
their business activities through divestment, customer centric activities and positioning
itself as the top energy services and solutions organization (Centrica Corporate
factsheet, 2022). The future strategic objective of Centrica is to achieve net zero as a
business by 2045 and provide net zero energy services and solutions that is efficient,
affordable and sustainable and for customers by 2050 (Centrica, 2022).

Figure 12 depicts the rivals of Centrica PLC and also shows the company having the
largest market share in Great Britain from 2010 to 2021 but due to the acquisition of
Npower by E.ON in 2019 (Statista, 2022), the 3% gap in market share between Centrica
and E.ON shrunk to 1% in 2021.
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Centrica PLC still maintains its strategy of decentralization of energy systems,

transferring power to the end users, and improving digitization, though displaying both
opportunities and risks. Determining and managing these risks is crucial to the
successful implementation of their strategy and the transition to a reduced carbon future
(Centrica PLC, 2022).

2.0 lnternationalization strategy.

For globalization to be successful MNCs must be able to evaluate and penetrate

international markets, speculate, form relationships and conduct activities (Daniels et al.
2021). Using the Bartlett and Ghoshal model, justification will be provided to show why
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Centrica Plc is pressured into adopting the transnational strategy which will aid
relative response to local demands while maintaining centralized control of activities to
ensure productivity and transfer of knowledge to attain efficiency as indicated in studies
by Ceren and Duygu (2015); Bartlett and Ghoshal, (2002); Bartlett, Ghoshal and
Beamish (2013), cited by Cavusgil et al. (2019).

Figure 14 shows the available strategic options available for a multinational company
trying to expand into new markets. Here strategic managers are faced with the dilemma
of deciding to either maintain the standard process and products, undauntedly exploiting
the impacts on location to expand functional efficiencies resulting in global integration or
adapting processes and products to the distinctive market situation in order to expand
functional effectiveness which results in local responsiveness (Daniel et al., 2021).

In a recent article by Ogunode and Ayoko (2022), the reasons for electricity instability in
Nigeria includes deficient infrastructures, poor corporate governance, mismanagement
of funds, insufficient transmission and distribution to customers, specialization issues,
capricious power sector policies, defacement of equipment, insecurity, and abysmal
maintenance attitude.

Extensive research must be conducted by Centrica PLC before expanding its energy
business into Nigeria given the socio-political and economic disparities between both
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countries. Transnational strategy will enable Centrica engage domestic competitors

directly, elevate a domestic profile to mollify public partners, fulfill host government
prerequisites, policies and guidelines, capitalize and maximize productivity of domestic
assets, competencies and capabilities, take advantage of similar customer preference
and common needs (Daniels et al. 2021). Furthermore, although transnational strategy
has its limitations such as productivity deficiencies, difficulty in configuring and
coordinating which could lead to administrative inefficiencies. With Centrica’s over 200
years history in the generation and distribution of electricity in the UK and other
international markets, the company has adequate experience to mitigate all issues.
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3.0 Analysis of Country of expansion

Nigeria is the most populous country in Sub-Saharan Africa, but power sector
inadequacies is limiting development. Nigeria is enriched with oil, gas, hydro, and solar
resources, and existing plants have the capacity to generate 12,522 MW of electricity
however, distribution is limited to 4,000 MW, which is not sufficient for a country with
over 200 million citizens (USAID, 2022). In an article by Wartsila (2019), Udemgba
Samuel Onuoha stated that Nigeria has vast potential in the renewable power
generation and that if the energy demands of country can be met it would fulfil economic
and development needs. Centrica PLC’s ability to tap into Nigeria’s high renewable
energy generation potential will resolve the most critical issue in Nigeria and add
substantial value to the lives of the people.

3.1 PESTEL Analysis

The Nigerian macro environment for business operations will be analyzed using
PESTEL analysis.
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Figure 13 PESTEL analysis for implementing renewable energy (Authors own

Diagram, 2022). Further explanation in Appendix A.

ENVIRONMENTAL
Availability of Renewable/Sustainable Energy Sources in Nigeria The availability of
renewable energy sources will be an opportunity to Centrica PLC since power generation can
be done locally which will lead to cost reduction.

GOVERNMENT
Renewable Energy Policies in Nigeria This factor could serve as a threat to Centrica PLC but
it could be successful if the government collaborates by providing grants, attainable social and
economic regulations and loan guarantee Tax incentives (Ikeanyibe, 2021).

TECHNOLOGY
Lack of technical expertise Although this factor is a threat, with the transnational strategy
adoption Centrica will be able to transfer knowledge to mitigate this barrier.

ECONOMIC
Economic stability The current economic review of Nigeria will serve as an opportunity for
Centrica since it has the competence and capacity to resolve the power issues in Nigeria which
can in turn boost economic growth.

Inflation This factor is a significant threat to Centrica PLC. However, in a recent survey by IMF
(2022), it was projected that Nigeria inflation rate will drop to 11.5% in 2027 which is a positive
outlook.
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3.2 Porter’s Five Forces Model

The profitability of the renewable energy industry in Nigeria will be analyzed using
Michael Porter’s Five Forces Model

The Bargaining power of consumers will be low since energy price is regulated by
the government.
The Bargaining power of Suppliers: due to the unavailability and specific nature of
components required for the constructing plants and infrastructures the bargaining
power of suppliers is extremely high.
Threat of Substitutes: This force is low because Nigeria has two hydro and six gas
electricity generating companies but due to management inefficiencies, corruption and
improper maintenance the capacity generated is very low and as such does not pose a
threat to Centrica PLC.
Competitive rivalry in the industry: Although other electricity generating companies
exist in Nigeria, this element will be low because the existing companies are
underperforming and not generating enough electricity to meet consumers demands.
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Threat of new entrants: this threat is low because Centrica has been in the business
of electricity generation for decades and has the technology, strategy and skilled
manpower that would make the expansion a success. For a new entrant the financial
implications including the cost of research and development will be high (Wheelen, et
al., 2017).

Although the current economic and security situation in Nigeria makes it unattractive,
with change in government and energy policies it will be profitable for Centrica to go into
generation of electricity in Nigeria.
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4.0 Market entry strategy

The major forms of international market entry strategy and the benefits and obstacles
are stated in table below

Collaborative mode of market entry is a significant element for companies who want to
have access to international markets (Gomes et al., 2011), according to speckbacher et
al., (2015), it aids companies obtain necessary resources. As a result, Centrica will
adopt the joint venture entry strategy for the Nigeria market, among the forms of
strategic alliance it is the most utilized (Wheelen et al., 2017). Integrating with the
domestic company Transcorp Power a subsidiary of Transnational Corporation of
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Nigeria Plc and the owners of Afam power plant which generates electricity using gas
turbines. Transcorp Power will ensure Centrica understands the culture, the business
environment, practices and economy with minimal risks when compared with other entry
modes. The alliance requires the capability of both companies with one providing the
technology and knowhow while the other provides the channel for distribution (Wall and
Minocha, 2015).

This collaboration that allows the transfer of knowledge is urgently required in Nigeria, in
a piece written by Akintayo (2022), it was indicated that 20 of the 23 power producing
plants in Nigeria generated below capacity leading to perennial power downtime due to
technical issues, unavailability of gas, maintenance of power plants and poor generation
capacity.

Though the merits of Joint venture collaboration are numerous, there are significant
demerits such as the risk of loss of technological control, reduced profits and possibility
of conflicts (Wheelen, 2017; Hill, 2020). However, these obstacles can be tackled by
constructing agreements to reflect minimal risk, with the dominant partner having major
ownership (Hill, 2020). In a recent article by Mbachu (2022), Aliyu said for Nigeria to
achieve sustainable supply of electricity sources must be diversified, more importantly
renewables. Centrica’s expertise in renewable energy can achieve this dream.
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5.0 Possible Operational and Managerial Problems and Recommended Solutions

5.1 Corruption and white-collar crime are challenges Centrica has to contend with as
it is integrated within the country. A UNODC (2019) report indicated that although the
pervasiveness of bribery in Nigeria had reduced the frequency had not abated, the
report suggests that an estimate of 117million bribes is paid annually in the country. An
article by Obadare (2022), stated that out of 180 countries, Nigeria ranked 154 in the
most recent Transparency International corruption perception index, she was also
ranked the second most corrupt West African country, and that this index affirmed the
intuition of many Nigerians who feel that corruption is the major obstacle to the country’s
indelible stability. Furthermore, although inducement is a crucial sign of corruption it
undermines the profoundness and extent of corruption that takes place in Nigeria daily,
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this affirms the belief that financial extortion precedes most transactions and the larger
the return on the required service the higher the inducement.

To combat this problem of corruption Centrica will have to collaborate with the various
institutions and agencies set up by the government to fight corruption such as the EFCC
and ICPC and ensure that all projects are carried out with transparency and integrity. It
must adopt a zero-tolerance approach to corruption and unethical behaviors to eliminate
reduction in the business investment ability and prevent the retardation of the country’s
rate of growth (Hill, 2020).

b) Technological and Research and Development Inadequacies

The improvement of sustainable power needs assistance in all phases of exploration,
presentation, and coordination to gain competitive advantage in the domestic industry.
However, though most sustainable power innovations, for example, wind power, solar
PV, hydropower, and so on are well known in emerging nations, in Nigeria it is still an
emerging technology. The unavailability of investment in research and development
activities in sustainable power to improve advances in technology by the Nigerian
government and inadequate expertise are problems Centrica will have to combat with.
Sometimes, funding provided by the government may not be adequate to grow R&D
activities thus the importance of investment in technological advancement by the private
sector in renewable energy cannot be over-emphasized (Emodi and Ebele, 2016).

A report by Wilson, (2022) indicated that Centrica is a firm supporter in digitization and
taking on innovations to provide field staff with ingenious technology and programs.
Centrica will solve these problems by transferring its core competence, innovations and
skills in the generation of electricity through fossil fuel and renewables sources to
Transcorp Power through its Afam power plant so as to gain competitive advantage
over other indigenous competitors who do not have these skills (Hill, 2021). Centrica
can also initiate research and development activities in Nigeria to enhance its reputation
for technological advancement and attention to specific country demands. Such
activities can develop collaboration with regulatory bodies and governments (Edwards,
2010).

c) Management errors: This involves new management knowledge gaps,

misjudgments and arrogance during the integration stages. Sometimes the advantages
of a joint ventures may be unattainable and not value adding as preplanned. For
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instance, in the execution stage culture conflicts at corporate or public levels may
materialize hindering possible collaborations. In addition, conflicts may arise if the
collaboration is between a technological company and a conventional regulatory
organization, certain workers may feel demotivated and lose their identities because of
the new management. Lastly, in the functional stage the forecasted economies of scale
and its extent may not be actualized for various reasons (Wall and Minocha, 2015).

Centrica can use the strategy adopted in the merger between Daimler and Chrysler to
tackle these issues by using expert projects managers to carry out the integration
process in stages, keeping the team negotiating small and discreet. They must ensure
full participation of all stakeholders in the global vision, disseminate information swifter
and facilitate prompt decision making through centralization (Wall and Minocha, 2015).
According to Centrica, (2022), engaging and communicating with stakeholders is a
factor critical to their success which lead to long term growth, customer and societal
satisfaction in the long run.

d) Organizational Structure
This involves the decision-making structure within the different units in the organization
and determining if it should be centralized, from Centrica’s headquarters in the UK to
Transcorp Power in Nigeria or conversely through decentralized decision making
(Daniels, et al., 2021). Although Centrica currently encourages decentralization of
activities within its various business segments (Centrica, 2022), it would be best to
apply the centralized principle with Transcorp Power given the current challenges with
the power sector in Nigeria which includes inadequate requisite skills and technical
know-how, poor maintenance culture, abysmal customer service, increased rate of
accidents, poor returns and insufficient metering service (Ayamolowo, et al., 2019).
Centralization will ensure global uniformity with the code, policies, standards value and
culture of Centrica and imbibing Centrica’s priorities which includes customer focus,
outstanding operational performance, growth in cash flow, staff empowerment and the
most aggressive supplier of energy (Centrica, 2022).

To avoid conflict, Centrica could centralize activities that will have a direct impact on its
profitability such as value adding configurations that will result in global economies of
scale while activities such as engaging domestic officials can be decentralized (Daniels,
et al., 2021).
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7.0 Appendix

PESTEL Analysis explanations Appendix A

3.11 ENVIRONMENTAL
Availability of Renewable Energy Sources in Nigeria is an important factor, despite the
power issues in Nigeria, the country is naturally endowed with a more than adequate alternative
resources that can generate energy to meet present and future energy needs (Ugwoke et al.,
2019). The radiation from solar energy has a direct impact on energy production including the
atmosphere, weather, crop farming and life itself is abundant in Nigeria, it is also known to drive
other forms of energy such as wind and water and can be stored as solar thermal or
photovoltaic (Ogumodimu and Okoroigwe, 2018). A study by Chineke, 2009 showed that all
the 36 states in Nigeria have wind energy potential though the wind velocity is higher in the
north. A study by Brimmo et al. (2017) indicated that although Nigeria’s hydro energy is
currently used to generate 40 percent of electricity consumed, it represents only 14 percent of
the country’s full capacity. Geothermal energy is also available in abundance in Nigeria
although it is still an untapped energy source, however three major sources have been identified
as having the capacity to generate electricity namely Pindiga formation, Biu Plateau and Gombe
stones (Eyinla et al, 2016). Nigeria has enormous potential for Biomass energy as renewable
energy source including forest and agricultural residues, animal and human wastes, energy
crops and aquatic biomass (Jekayinfa, et al. 2020), in addition Nigeria is estimated to have a
biomass generating capacity of 2.33 EJ.

3.12 GOVERNMENT
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Renewable Energy Policies in Nigeria from the year 2001 to 2020 the government of Nigeria
has proposed several policy frameworks on renewable energy (Owebor, et al. 2021) to help
improve the Nigeria's energy supply deficiencies (Mohammed et al, 2013). Furthermore,
population growth, passion for current economic and material evolutions, and skilled workforce
development are all activities that require energy to be maintained. Despite these policies it is
obvious that insufficient effort in terms of research and development, human capacity training
and financial commitments have been directed towards properly utilizing renewable energy
sources of electricity.

3.13 TECHNOLOGY
Lack of technical expertise in a paper by Sambo (2007 cited by Takim, et al. 2017)
inadequacy of experts for monitoring and utilization of renewable energy sources including lack
of expertise for quality control is a significant barrier for foreign investors. Nigeria is mainly
reliant on foreign countries for expertise in RET management, which discourages growth of
RET. Components required in the usage and development of RET components are also scarce
and inadequate resulting in importation which is very expensive. The lack of good quality
management of components manufactured domestically and imported component technologies
is one of the barriers to RET development. Furthermore, the competency level of the staff who
work in energy companies in Nigerian is extremely low.

3.14 ECONOMIC
Economic stability according to a report by USAID (2022), the economic potential of Nigeria is
limited by several fundamental problems which include insufficient infrastructural facilities, trade
restrictions both tariff and non-tariff, investment impediments, distrust in currency valuation, and
deficient foreign exchange volume. The report also indicated that a major constraint of the
country’s economic growth is the insufficiency of electricity generated and that this issue can be
resolved through government and private sector collaboration in conjunction with their support.
A more recent report by the world bank (2022) suggests that Nigeria's development possibilities
for the following three years have further enhanced thanks to a vigorous revival in service and
agriculture sectors of the economy and increased oil costs worldwide.

Inflation although there is improvement in Nigeria’s prospect for growth, the general
macroeconomic framework of the country is declining due to a lack of strategic policies to
combat inflation, tackle fiscal pressures and control exchange rate fluctuations (World Bank,
2022). In addition, it is anticipated that inflation will rise by 2% in 2022-2023 higher than was
initially predicted. This continuous rise in prices will lead to an increase in the poverty level of
Nigerians and as such they may not be able to pay for electricity distributed.