Chapter 1: Introduction

1.1 Background of the Problem

Globalization is an international phenomenon: its action is mainly to achieve a global penetration of capital (financial, commercial and industrial), has allowed the world economy (mechanisms that comprise: trade, production, and finance) modern, open spaces for active integration intensify global economic life arises from the ever increasing internationalization of the economic, social conflict and political-cultural phenomena. Globalization has been defined as the process of denationalization of markets, law and politics in the sense of linking peoples and individuals for the common good. Although it may be arguable that this leads to this well, can be defined as the stage is global capitalism, characterized by the elimination of economic borders that prevent the free movement of goods, services and capital primarily.

It is also a historical process, the result of human innovation and technological progress. It refers to the extension beyond national borders, to the growing interdependence among countries, the increasing integration of economies around the world (this at all levels of human economic activity), particularly through trade and financial flows also covers the cultural, political and environmental impacts. Then we can say that globalization is a concept that aims to describe the immediate reality as a global society, beyond borders, barriers, ethnic, religious beliefs, political ideologies and socio-economic or cultural, or an attempt to a world that is not split, but widespread, in which most of the things are the same or mean the same thing.

In economic terms, Globalization goes beyond the "simple" international, as many economic agents are little more national in scope (Hill, 2004). There is a global standardization of products and production technologies. Economic globalization has three main features (WB, 2003):

  • Foreign Trade (International Trade): An essential characteristic of globalization is the increasing share of imports in the domestic consumer goods and services, combined with simultaneously increasing share of exports to the domestically produced goods and services. In developing countries ("low and middle income countries") the foreign trade share in GDP (imports plus exports relative increased GDP) in 1990 was 33.4% and 51.8% in 2002 (WDI, 2004);
  • Foreign Direct Investment (FDI) globally has prompted companies to invest abroad in order to produce new and there (sales) to open up markets. In 2000, FDI amounted to U.S. $ 1.4 trillion primarily due to the unstable World economy in 2002 to U.S. $ 651 billion declined;
  • Capital Market Flows: Another sign of globalization is that investors are increasingly diversifying their portfolios to foreign stocks and bonds and grant loans in foreign countries. Domestic borrowers looking not only capital domestically but also abroad. In this context, globalization can be understood as (economic) integration of World economies.

The concept of globalization is based on a relatively simple approach. Globalization is the division of labor leads to productivity growth, as everyone does what he does best. If everyone does not do everything himself, everyone is on products and services of others. This exchange process is beneficial for all involved, because everyone can make it, which he has a lot and gets what he needs. The specialization of these derived labor productivity leads to an increase of the common good. A British economist Ricardo developed the approach of comparative costs proving that trade can contribute even in the absence of absolute cost advantages to the prosperity of both trading partners (Coughlin, 2002). A country will produce a good comparatively cost-effective with its critical production resource and it is relatively better because its purchase is relatively favorable (Coughlin, 2002).

Nigerian economy is one of the most dynamic economies of the African continent showing a growth of 6.8% in GDP. However, the global crisis has been felt by a significant drop in the price of oil (divided by three), a credit crunch and a financial sector weakened by toxic assets: on behalf of oil surplus - when the excess barrel is beyond 45 U.S. dollars - no longer receives revenue in the actual context. Under these conditions, inflation, which had long contained a number, ended 2008 at 15.1%, the naira has lost 20% of its value at the official rate for a year (Doan et al, 2009). These underperformances threatened the precarious balance that had been achieved between 2003 and 2007 and make less credible the ambitious "Vision 2020" displayed by the authorities, which is to make Nigeria the 20th world economy by 2020.

1.2 Statement of the Problem

A key issue for economy of Nigeria is how local businesses benefit from liberalization and globalization of their businesses. For most Small and Medium Enterprises, the problems are of two types: first, is the company make productions for regional and global markets or is it excluded from the process; second, modernization of the companies.

Small and Medium Enterprises (SMEs) are the backbone of Nigeria’s economy and are a vital source of economic growth, dynamism and flexibility. These companies play a vital role in job creation and are now the dominant form of business organization. Funding is needed, however, to help create and develop their activities. Economy of Nigeria, therefore, cannot flourish if the various forms of financing offered by financial institutions do not allow SMEs to meet their needs.

The micro-enterprise sector is the visible manifestation of disadvantaged populations having different stress conditions particularly since the implementation of structural adjustment policies and economic strategies. SMEs help in the proper functioning of the nation; because of its informal status, SMEs evade tax revenues. It is described as "unfair" competition as SMEs products sold at disproportional price with the purchasing power of the population. It has grown to become and recognized today as a full-fledged sector which is reckoned in the same way that the modern sector due to its heavy weight and growth, at least as the main source of employment and relevant part of the fight against poverty.

This trend is the result of several reforms introduced. Indeed, for the last several years, SMEs are considered as a phenomenon that has increased employment opportunities for the public sector and become the main source of employment for graduates in Nigeria. The state has become aware of its limits to absorb alone the number of students out of high schools and vocational training centers. Given this context, the economic policy, through action on consumption, investment and government spending, would become more appropriate to increase the national income. As such, the Small and Medium Enterprises (SMEs) have been identified as one of the major growth poles of the Nigeria’s economy.

In parallel, a current of thought gradually developed describing micro enterprises not only as a means to fight against poverty, but also as a solution to problems of growth. It is in this perspective that since last several years, authorities with the support of partners, engaged in promoting the business category. However, the proportion of SMEs based on their efforts in ways still seems disturbing. In fact, these companies face many difficulties that constrain their development. Among which include the problem of access to bank financing (Beck & Demirguc-Kunt, 2006).

For most industrial companies in developing countries, previous decade is different because in the previous one or two decades, business enterprises are facing more competition and brings into play many more factors. Liberalization and globalization have compelled the companies to face pressures of prices, quality etc. the developing countries like Nigeria has an advantage over the developed countries, i.e. they have to pay lower wages to their employees. This has provided an opportunity for countries like Nigeria to expand their businesses globally.

The economic boom in Nigeria has generated an unexpected economic recovery at the time of the crisis, translated in cumulative annual growth of 9% of GDP in the last three years. This exponential growth rate has also been reflected in the business which experienced a remarkable leap forward. The decision of the national government, followed by the provincial governments of developing investment projects of public works infrastructure, has boosted activity and increasing budget amounts (Ogunlana, 1999).

However, in international markets, Nigerian companies, have to face invasive and generally unfavorable environment which make them less able than large countries in America and Asia to organize on a regional basis and to resist the proliferation of initiatives of their partners. Unlike rich countries, their obligation is made to worry at the same time the competitiveness of the environmental protection, the fight against the poverty, governance, democratization, regional integration etc. It is a disservice to Nigerian companies to ignore the fact that states and institutions dominated by the colonial powers are still extremely young. The priority, since independence, is given to the assertion of state and territory, the search for national identity could not be more logical from emerging countries. Similarly, the extension of the essential model of governance and economic options of the colonial era is a natural behavior. The transformations that have occurred in the country, in the period 1960-1990, shows that the past decades have not been "lost" for the development, as is often claimed.

1.3 Aim of the study

The main purpose of this study is to observe different factors, problems and constraints faced by the Nigerian companies in expanding their businesses to global markets. This study also tries to identify and analyze material factors of public and private sectors which are restricting the success of global business projects in Nigeria. The result of the research is expected to minimize the rate of failure of Nigerian companies international operations.

1.4 Research Objectives

  • To identify the constraints, faced by the Nigerian companies, in expanding business globally;
  • To examine the challenges, Nigerian companies have to face, for involving in developing global markets;
  • To identify the key practices which facilitate the development of global markets for Nigerian companies;
  • To discuss the unique situation of Nigerian manufacturers’ in international trade.

1.5 Research Questions

  • What are the constraints to business expansion?
  • What are the challenges involved in developing global markets?
  • What are the constraints and supports available to facilitate international trade?
  • What practices facilitate the development of global markets?
  • To what extent is the trade situation for the manufacturer in Nigeria unique?

1.6 Significance of the Study

Given the statement of this study is to define the basic elements that will allow the industry to absorb the necessary and sustainable work plans without generating throttling processes demand with consequent price increases, delays and low quality works in the same, or supply bottlenecks works with consequent unsustainable price declines of works, price war, divestment of equipment and finally constraints to expand their business globally. The investment process will require action by public sector reorganization linked to the investment process, as inefficiencies in managing low capacity impact on prices and quality of the works and policies of reinvestment of private activity. It is therefore necessary to advance methodologically know the situation in the sector and this situation and prospects for immediate investments, analyze what is the real capacity absorption of works (Turner, 1990).

In every international project, there are different groups involved, indirectly or directly, from the very beginning of the project (Frooman, 1999). Stakeholders participated and share their knowledge, experiences, and insights to encourage the project throughout the project time and so it is important to capture their contribution. The requirement and needs of all stakeholders should be recognized and correctly controlled to better support the growth of the project.

This research concentrates on the major issues, faced by the Nigerian companies, in expanding their business globally. Major strategies and issues of stakeholders to controlling the stakeholders are recognized throughout the literatures. This study will take an in-depth assessment on the factors that impact the globalization of Nigerian companies and the outcome of this research will be of great value for the future of Nigeria’s economy as a whole. It will give related and helpful knowledge that will be of worth to the client (both private and public institutions) for their actions and for future study on the issue (Sivonen, 2009). This study is significant and timely because it provide insight into how to facilitate and increase the internationalization of businesses in order to improve and achieve country’s (Nigeria) socio-economic goals. This paper will participate to the body of information in the Nigerian business by presenting comprehensive understanding into the aim, value and productivity of method.