Workshop Week 5

152.261

Discussion of a case study

Case: FDI in Nigeria

Discussion questions:
Why does the Nigerian market seem so attractive to multinational firms?

What type of political risks are there in Nigeria: ownership, operational or

transfer?

How does the government of Nigeria deal with corruption in a way that
will facilitate FDI (foreign direct investment)?
Attractiveness of Nigeria to FDI
Why does the Nigerian market seem so attractive to multinational firms?

• Since 2000, Nigeria’s economy and political reforms favour more FDI from
MNEs as seen with P&G and GE investing in large long-term infrastructure
projects.
• These firms are oligopolistic, which means:
• They are in an industry with a limited number of large firms, and
• They operate in a competitive environment that is conducive or
favourable to them.
Attractiveness of Nigeria to FDI

• Nigeria is receptive to the terms of ‘ownership’ rights (such as wholly

owned subsidiaries);
• It means that the firm enjoys entitlement to, as well as the advantages that
emanate out of that ownership structure, such as those that arise from:
• The accumulation of intangible assets,
• Technological capacities or
• The firm’s innovations.
Types of political risks in Nigeria
What type of political risks are there in Nigeria: ownership, operational or transfer?

• Ownership risk: Not much, as this type of risk requires government actions
that will result in a counterproductive change to the preferred ownership or
corporate governance structure of the business.
• Transfer risk: Not much, as this type of risk requires government actions
that will limit the transfer of resources and funds across international
borders
Operational risk in Nigeria

• Operational risk: Yes, as this type of risk involves government actions that
impose counterproductive constraints on how the business wishes to operate.
• This type of risk involves government policies, regulations and administrative
procedures that will directly constrain local business operations.
• A host government such as Nigeria may permit FDI conditional on certain
requirements being met.
• These operational constraints would increase the costs of doing business in
Nigeria and further would limit P&Gs strategic freedom in their international
operations.
•  
How Nigeria deals with corruption
How does the government of Nigeria deal with corruption in a way that will facilitate FDI
(foreign direct investment)?

• By acknowledging that there is a problem of corruption in the nation. For

Nigeria, this is very high. If this is systemic, as it is, and where the rule of law
is weak, corruption will continue to be rife.
• Establishing a low-tolerance policy towards corruption
• In line with established industry policy, providing employee training and
rewards for ethical behaviour when dealing with government officials.
How Nigeria deals with corruption

• As an advanced option, Nigeria could join the Convention on Combating

Bribery of Public Officials in IB Trans
• In the long run, the negative effects of corruption on political stability and
the quality of governance may well outweigh the expected benefits of
short-term political payoffs, such as those ascribed by facilitating payments
that speed up bureaucratic processes.
 Case: The Brexit Economy

Watch this video:

https://www.youtube.com/watch?v=EIgE3Ccqdkw

Discussion questions:
What is Brexit? Why is it important to Great Britain and indeed the future of the United Kingdom itself? Discuss the
challenges for the United Kingdom of leaving the European Union.

Discuss the implications of the uncertainty surrounding Brexit for companies doing business in the United Kingdom.
How might it affect decisions to invest in the United Kingdom? What does it mean for companies with supply chain
strategies involving operations in the United Kingdom? How can companies mitigate the risk of Brexit on their
businesses?

How is the value of the British pound sterling determined? What are the implications of a lower pound for British
consumers? How does the value of sterling affect companies that export from Britain? What does it mean for
companies importing products from the United Kingdom?
Challenges for the United Kingdom of leaving
the European Union

• Referendum passed in 2016 by a small margin - hard to arrive at agreement in

Parliament of how to go forward
• Called into question the UK
• Caused confusion and uncertainty
Attractiveness of UK to FDI

• Loss of business in UK to other EU countries (e.g. Ireland)

• Customs Union in the EU is no longer there – harder to do business with the
European Union, especially for SMEs
• Free trade agreements need to be renegotiated to speed up trade
• Perceived as more costly, more effort, more delays, less efficiency
• Uncertainty – reluctance to invest in the UK and growth of other markets
How is the value of the pound determined? Implications of a lower
pound for British consumers? For exporters? For importers?

• Value of the pound determined through supply and demand.

• Pound has fallen in value significantly.
• Lower value means that foreign products and services are more expensive (e.g.
Holidays to the USA or buying American cars are now more expensive)
• Demand for imports is less (as they now cost more for the British consumer)
• Exporters will be able export more to countries with stronger currencies as
they will appear cheaper (e.g. To the USA)
Political risks in the UK

• Ownership risk: Not much, as this type of risk requires government actions
that will result in a counterproductive change to the preferred ownership or
corporate governance structure of the business.
• Transfer risk: Not much, as this type of risk requires government actions that
will limit the transfer of resources and funds across international borders
 Review Question 1
By lowering production costs, _________ help domestic producers
compete against foreign imports.
A. tariffs
B. duties
C. quotas
D. subsidies
 Review Question 2
If goods are being sold at below their cost of production, or goods are
being sold at below their "fair" market value, ____________ policy
can be imposed against a foreign firm.
 Review Question 3
The GATT and WTO were successful in _________ tariff barriers on
manufactured goods and commodities, but there has been
_________ progress on agricultural trade and FDI liberalisation.
A. raising, no
B. stopping, significant
C. enabling, disappointing
D. lowering, little
 Review Question 4
The system of values and norms that are shared among a group of
people and that when taken together constitute a design for living
best defines 
A. Society
B. Value systems
C. Principles
D. Culture
Review Question 5
The relative decline of the United States in the share of world output
and world exports reflects _____. 
A. An increase in the barriers to foreign trade in the US
B. The deepening of the global financial crisis
C. The reduced industrialization in the developing countries
D. The growth in the economic development of the world economy
 Review Question 6
The social organization of Western society tends to emphasize on 
A. A group orientation
B. The family
C. Individual achievement
D. Work groups
 Review Question 7
 A _____ is a closed system of stratification in which social position is
determined by the family into which a person is born and change in
that position is usually not possible during an individual's lifetime. 
A. Caste system
B. Class system
C. Social system
D. Culture system