Business Environment

Meaning of Business Environment

Business environment means all of the internal and external factors that affect or influence how
the company functions including employees, customers, management, supply demand and
business regulations. Because a business does not exist in a vacuum, the business environment
may pose threats to a firm or offer immense and absolute opportunities for potential market
exploitation. Whereas, one of the characteristics a business must possess so as to survive is the
“adaptation of the business to its existing environment”. Failure to adapt which will surely lead
to an untimely liquidation of the such business or company.

Types of Business Environment

There are two types of Business Environment, they include

 Internal environment
 External environment
Internal factors of business: The internal factors also known as “Micro environment”
comprises of the factors in the immediate environment of a company that affect the performance
of the company. It includes:

 Management changes
 Employee morale
 Culture changes
 Financial changes and/or issues
External factors of Business: The external factors of business otherwise called “Macro
environment” can be refers to as forces out side of the business or organization that potentially
affect the performance and welfare of the organization. The macro environment of business
consists of:

 The economic factor

 Demographic factor
 Natural factor
  Cultural factor
 Government or political factor

Challenges of Nigerian Business Environment

Despite the growth of the economy and the potential of great business opportunities, there are
challenges of Nigeria business environment which stand as predators (constraints) to the survival
of business in the country. Below are the major problems or challenges of Nigerian business
environment which an investor could face:

Lack of Enabling Environment and Infrastructure

The Nigerian business environment lacks basic social amenities and infrastructural facilities that
aid business development and survival. For example, if an investor intends to start or set up a
production firm, he or she will find out that they need to provide their building, water supply,
logistics and other amenities needed.

Poor Power Supply

So far, Nigerian government has not been able to find a lasting solution to the situation of poor
power supply in the country which affects the big organizations including the multi-purpose and
one-man businesses. The presence of this as a major constraint of Nigeria business environment
has killed a lot of infant industries in the country.

Poor Transportation Network

The country has been for a long time facing lack of good roads all over the nation.

Poor Accessibility of Funds

Finance and funding is a major aspect of setting-up and running a business. Money is needed to
buy materials, supplies, equipment, pay staffs and lots more. In the country, funding is also part
of the problems especially if an entrepreneur does not have enough money to kick-start the
business which occurs mostly in a one-man business. Financial institutions (including banking
and non-banking) that could help investors have so much increased their interest rate on
available loans, thereby become affordable for companies.

Lack of Government Support

Government is the backbone of a country’s economy. Frequently, people have been complaining
about government not doing enough to help startup business. In starting a business, one needs to
register to provide all information as it may concern the business in accordance with the
government policy. People have often complained about the cost of such registration and the
administrative bottlenecks involved in registering the business, which leads to a delay in the
business set-up. There is also the problem of high taxation and duties placed on the business
operation.

Other problems that may affect the business include:

 Inadequate security of lives and properties,

 Political instability,
 Lack of adequate technology,
 Lack of good Managerial and strategic planning and decisions
 Inadequate infant industries protection.

Business Analysis in Nigerian Environment

Business Analysis is a set of tasks and techniques used as a connection between stakeholders to
understand the firm’s structure and policies. Business analysis models are useful tools and
techniques that can help you understand your organizational environment and think more
strategically about your business. The process can help to measure performance, set goals and
recommend solutions which help to attain business goals.

Depending on the nature of business and problem, you can use one or more of these tools.
Analysts often use SWOT and PEST before facilitating business changes.

1. SWOT Analysis of Nigerian business environment

Every country has its own business environment, just as every organization has its own set
business culture and business etiquette. While undertaking a business either locally or abroad,
the managers or owners of the organizations have to account for and consider all the macro and
micro economic factors, which are likely to contribute to the success or failure of the business.
SWOT is an acronym and it stands for “Strengths, Weaknesses, Opportunities and Threats”.

THE STRENGTHS
Nigeria is a combination of people of various ethnicity, races, and languages. There are many
strong factors which ensure a successful business in the country (local) and abroad (global).

Local Environment

Nigeria has a high potential of growth and stability. It is a strong environment for the
businessmen to flourish their business.

Global Environment

The country can take advantage of going global. It has its strong oil and gas sector which can
help her earn a lot of foreign exchange in the field of exports. The petroleum exportation also
serves as a source for foreign reserve.

THE WEAKNESSES
Since Nigeria is a developing country; there are many factors which are responsible for
hampering the country’s competitiveness locally and globally.

Local Environment

In the above challenges of the Nigeria business environment, we were able to realize problems
affecting businesses in Nigeria. These problems have been compounding for many years and
have forced the manufacturers and businessmen to either close down their businesses or relocate
to other foreign countries.

Global Environment

Nigeria as a country is deficient in her economies and therefore requires foreign assistance and
investments to improve and enhance her managerial and capital base. An inadequate internal
resource is a big weakness that hampers her productivity and competitiveness on the global
platform. In order to globalize its business, the Nigerian company will have to integrate itself by
embarking upon diversifying her economy and export base so that it does not concentrate on
sector only. Plus, she must start introducing a new and advanced technology.
THE OPPORTUNITIES
In SWOT analysis, the element of opportunities involves the external available resources or
chances of expansion or improvement that a business organization could utilize.

Local Environment

Having a high population of about 200million people, the demand for products and services is
high and brought about large market place for the business, thereby it guarantees patronage and
give room for the betterment of a business

Global Environment

The country has opportunities to form good bilateral relations by increasing its export base,
diversifying its economy by going global, exchanging goods and services, and even laborers.

THE THREATS
Threats on the other hand refer to those aspects of a place or organization, which if taken up,
could harm the reputation, profitability, or any other part of a business.

Local Environment

As a result of an increasing rate of crimes, frauds, and scams in the country, it has been years
since the stories of water shortages have prevailed in the country and still, her weak and
abnormal resources management and maintenance continued to dominate.

There was also a time when deregulation, corruption and fuel scarcity occurred in Nigeria. Thus,
these factors have led to the reputation of local businesses being fallen. It also hinders the
productivity and become an obstacle in the way of enhancing business competitiveness.

Global Environment

The Nigerian companies lack sufficient capital to invest, they are also short of material
resources, and have low standards of products and services. They are not equipped with
advanced machineries, newer and innovative production methods, as well as educated and skilled
labor. Thus, most of them fail when going on international environments.
 PEST ANALYSIS OF NIGERIAN BUSINESS ENVIRONMENT
First of all, you need to know that the word PEST is an acronym for Political, Economic, Social
and Technological factors. The roles of pest analysis in determining whether a business in
Nigerian Business environment will succeed or not can never be over emphasized.

 Political Factors
Politically, Nigeria seems to be stable except for the uprising of the terrorists in the Northern part
of the country. Also, another faction in the South-South agitating for their rights over the oil
revenue may make the business in that area to be volatile. There has been series of oil pipes
vandalization across the oil rich cities in Nigeria, including the Niger Delta area, also Herdsmen
and the farmers killing. This could be considered a factor that can relegate the survival of a
business as a result of hike in the prices of oil in these arrears due to this act.

 Economic Factors
Nigeria as a country has been a mono-economy with total dependence on oil revenue. Currently,
the economic situation in Nigeria is not that buoyant. With the current glut in the oil market, the
revenue coming to the country has come down drastically. Because Nigeria operates a federalism
system of government with three tiers of government namely; Federal, States and Local
Governments, revenue has to be shared across the three tiers of government. With the shrunk
revenue, the money coming to the States and Local Governments is not enough to finance their
recurrent expenditure let alone capital expenditure. The resultant effect is the lack of disposable
income for her citizens. Therefore, this is not the time for the purchase of luxury items. People
will like to spend their available resources on basic needs.

Social and Cultural Factors

Nigeria as the most populous country in African continent has an estimated current population of
about 204million people ranking it No.7 in the whole world. That is why Nigeria is being
referred to as the giant of Africa. The market potential here is very huge. In the past years,
despite the instability in the country, foreign direct investment has been on the increase. For
instance, the investment in the Telecommunication industry has been very huge. As at April
2016, Nigerian Communications Commission reported 147.57 million active numbers. The size
of the population is enough to attract investors into the country.
  Technological Factors
Unlike before, Nigerians are fast becoming computer savvy. A large number of Nigerian youths
are computer literate. Although, laptops and personal computers still remain a luxury to some
people, the use of Smartphones seems to be bridging this gap. With Smartphones, many people
are now active users of internet with social media presence.
 SOURCES OF FINANCE

Financing Small and Medium-sized Enterprises (SME’s)

Small businesses generally have weak capital base since majority of them are either sole
proprietorship or partnerships. They have no opportunity to draw money from the capital market
as big companies do. Consequently, the only option is to borrow money and at times with un-
favourable terms. Small business operators rely primarily on "own equity", bank financing, trade
credit and lease financing to finance their business. However, in recent years, small scale
industries in Nigeria are being given increasing policy attention and financial incentives. But
before going into sources of finances, it is important that the potential investor has an idea of an
estimated level of fund needed for his particular type of business. He needs to count how much
money of his own (equity) he is prepared to put into the business before he thinks of borrowing
and other financial assistance. To this end, budget becomes an absolute necessity.

Sources of Finance

This form of business is mostly popular in developing countries as it encompasses the sole
proprietorship business, some level of partnership or the entrepreneurship venture. It is the
easiest to set-up. As a result of this popularity, there are so many sources of funds.

 Personal Savings

Keep in mind that most lenders won't finance 100 % of your business, so your first source of
capital will probably be a loan from yourself. Few businesses are entirely funded by parties other
than the entrepreneur. There are definite advantages for you here: 100% control and ownership.
You own the whole company, control the show, and stand to reap the gains should your venture
become valuable.

 Family and friends

Borrowing from your friends and family is a good way for new businesses to get money. It is not
uncommon for relatives to make low interest or no interest loans to family members. However,
you risk alienating your family if the business falls on hard times and you have trouble repaying
the loan. Be sure that you have a written agreement regarding the amount borrowed, the interest
rate and how and when the loan is to be repaid.

 Banks

It has been reported that the most important factor in getting a small loan is the credit history of
the borrower. If you don’t have a good credit history, clear up all your credit problems before
you go to a bank for a loan. Nowadays, this is usually expressed as your credit score. If you don’t
know what your credit score is, find it out before you go to the bank.

There are two basic types of loans you might want to consider

Business Loans

Most small business loans are secured with company or personal assets. Lenders will usually ask
for personal guarantees, as well as collateral from anyone who owns more than 20 percent of the
company. The bank's reason for requiring collateral is, in part, to gauge whether you think your
company is worth the risk you are asking them to take. Business loans have more strict
requirements than consumer loans. For example, if your business is in tough financial times,
your bank may ask you to immediately pay off the full amount of the loan, something that is
unlikely to happen with a consumer loan.

Consumer Loans

Many small businesses are funded through personal loans or other loans based on personal
assets. Consumer loans, home equity loans, second mortgages, mortgage refinancing, and
personal loans - are easier to obtain than business loans if you have a good credit history. Some
banks don't mind if you take a consumer loan and use the funds for business purposes, others
will refuse to lend to you if you tell them you need the money for business purposes. Keep in
mind that if you tell a banker a loan is for personal use and you use it for business, that lie
constitutes an act of fraud.
Consumer loans require less paperwork than commercial loans, and the approval process is much
quicker. It is also unlikely that you would be asked to pay the loan back in full if your business
falls on hard times, something that can and does happen with a business loan.

 Government Guaranteed Loans (Small Business Administration)

The Small Business Administration (SBA) works as a guarantor on loans to small businesses. If
you are pursuing an SBA-guaranteed loan you should attempt to work with lenders in your area
that partner with the SBA. Funds guaranteed or provided by the SBA may be used to build or
start a business, not as a means of paying off creditors, to cash out investors, or for investment in
real estate, among some other restrictions. Qualifications for an SBA loan change over time and
with the nature of your business, but general guidelines for qualifying are listed below:

 Your business must meet size limits set by the SBA

 Business must be a for-profit entity
 Business cannot be dominant in its field
 Business must be independently owned and operated
 Finance Companies

Commercial Finance Companies are the companies that make many car loans. They take on
higher risk commercial loans than banks and can handle commercial loans. If your small
business will continually need your loan ceiling increased, a finance company may be your best
bet. Some of the situations that may precipitate your need to go to a finance company are: your
company is high-growth and will continually need its loan ceiling raised; your credit history is
spotty; or your company has a high debt-to-worth ratio with a strong cash flow. Greater risk
usually brings higher costs and finance companies are no exception. Rates and fees will be
higher than banks.

 Angels

Angels are people with money who are looking for an investment that will give them a better
return than traditional investments. They provide sums of money under $200,000 range and tend
to invest in their home state or region. This person could be your next door neighbor, your
dentist, or a local business owner. Angels contribute capital to your business in return for partial
ownership or debt repayment. As such, the degree of control and terms under which you receive
seed money for your business will depend on the arrangement made between you and your angel.

The key to finding an angel in your area is networking. While you may not have an angel in your
personal pool of contacts, by networking with others you can create a word of mouth campaign
that reaches the ears of private investors. Seek advice from a CPA or other financial professional
when considering this type of financing assistance.

 Grants

Grants are available most frequently to non-profit companies, although some grants exist for
"for-profit" companies. What is almost impossible to come by is a grant for a business start-up.
Most grants are made available for the development of a product or service that will benefit the
public or will generate a product or service the government needs.

Definition of Location of Industry

Location of industry is the geographical spread of economic activity within an economy. By
localization of industries is meant the tendency on the part of industries to be concentrated in
regions which are most suited for their development. Location of an industry refers to the setting up
of an industry in a particular area where the cost of production is reduced as much as possible.

FACTORS INFLUENCING LOCALIZATION OF INDUSTRY IN NIGERIA

The important factors which influence the localization of industries are discussed as below:

(i) Nearness to raw material: One of the very important factor which affects the birth of an
industry in certain areas is the nearness to sources of raw material . The availability of raw
material near the location of the industry helps considerably in reducing the transport cost and so
the total cost of production of the commodity. It is due to this reason that most of the industries
are established in regions where the raw material is available in abundance. Example is the
Ceramic Company in Abeokuta.
(ii) Availability of source of power: Availability of cheap power resources is another important
factor that influences the concentration of industries in particular areas. If for instance, electricity
is to be carried over to a long distance where the industry is located or the coal which serves as
raw material is to be transported at a far-off distance from where it is extracted, it will not be
economical to set up the industry at such places which are far away from the sources of power.

(iii) Physical and climate conditions: Physical and climatic conditions have an important hearing
on the growth of an industry. If suitable climate and desirable physical conditions exist in a
particular industry, that will be established and developed in that region then.

(iv) Nearness to market: Industries have a tendency to be localized in those areas where the
market is near. The goods produced can be easily brought in the market and there can be much
saving in the cost of transportation.

(v) Supply of trained labor: Supply of trained labor is another great attraction for the
concentration of an industry in a particular area. If for instance, one wishes to set up a cotton
factory, it will be advantageous for him to install it in Faisalabad or Okara.

(vi)Availability of Land: Land may not be a very important factor in terms of a firm’s location, though
its availability may affect industry location in certain instances.

Advantages of Localization of Industries

1. Employment Opportunities: As an effect from the above, with the localization of an

industry in a particular locality and the establishment of subsidiary industries,
employment opportunities considerably increase in that region.
2. Infrastructural development: Infrastructures like roads, schools, railways tend to
develop near localized areas.
3. Urbanization of an area: When a lot of industries are concentrated in an area, they tend
to create towns of their own hence an identity of development.
4. Reduced cost: Easy availability of raw materials, labor, power and other resources help
to reduce cost of production. Lower costs help industries to reduce prices and increase
profits.
5. It increases on the government revenue: Localization tends to increase on the
government revenue. This is always inform of the taxes paid to the government. This
taxes are always levied to this industry
6. Improved standards of living: People always get money since they get employed in
these localized industries and this helps to increase on their level of income, as a result,
the standards of living also tends to go up.
7. It helps to increase on production: Localization tends to increase the level of
production in a particular area. This avails the people with a variety of choice from which
to choose from. This is as a result of encouraging specialization.

Disadvantages Of Localization Of An Industry

1. It causes pollution: Industries always release toxic substances to the air inform of fumes.
Is creates health hazards to the people living near this industries. Example: Lagos state

2. Regional imbalance. Localization of industries creates regional imbalance that is some

regions become more developed than others.

3. Increase in the costs of living: The cost of living tends to go up as a result of

localization. It Is always subjected by an increase in the prices of food stuffs, water and
accommodation.

4. Immorality tendencies tend to emerge. this include prostitution, robbery, murder which
always put the lives of individuals at a risk

5. It leads to the development of slums. This is always due to over population in this areas
and the majority of the people earn low incomes.

6. Localization results in the economic independence of one locality on the other or of one
country on the other; if the commodity demanded is one of the basic necessities of life, it
can cause much inconvenience to the depending nations.

7. It leads to over-congestion. This seriously tells upon the health and efficiency of workers
and their children. This is what has happened in Lagos, Abuja, Port-Harcourt.