Globalization is an international phenomenon: its action is mainly to achieve a global penetration of capital (financial, commercial and industrial), allowed the world economy (mechanisms that comprise: trade, production, and finance) to 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 people and individuals for the common good. In other words, globalization can be defined as the stage of global capitalism, characterized by the elimination of economic borders that prevent the free movement of goods, services and capital primarily.
Globalization 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 which also covers the cultural, political and environmental aspects. Then we can say that globalization is a concept that aims to describe the immediate reality as a global society, beyond ethnic borders and barriers, religious beliefs, political and socio-economic or cultural ideologies, 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):
1. 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);
2. Foreign Direct Investment (FDI) globally has prompted companies to invest abroad in order to produce new avenues (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;
3. 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 and provide 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 been contained for a long period, ended in 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 (Adejumobi, 2011).
A key issue for economy of Nigeria is how local businesses benefit from liberalization and globalization of their businesses (Adejumobi, 2011). 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 (Nduka, 2013). Economy of Nigeria, therefore, cannot flourish if the various forms of financing offered by financial institutions do not allow SMEs to meet their needs (Nduka, 2013).
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 (Adewusi & Boolaky, 2012). 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 Adewusi & Boolaky, 2012). 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, Europe 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.
· 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.
· 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?
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 provides 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.
Globalization has increased the number of international players in the world market. Due to this increase of international players, there is an increase in the competition on a global level. In order to compete with this international level the multinational organization needs to have managers who can work in different subsidiaries in different regions of the world (Gregersen & Black, 1998). According to the figure of UNCTAD (2005) there are more than 79,000 multinational corporations with over 850,000 foreign affiliates, which are operating in different parts of the world. In recent decades, the numbers of employees employed by the multinational corporation (MNCs) have increased. In 1982 this figure was 21 million and by 2005 it became 82 million. It rises 3 times in quarter of a century. These employees are now producing 11% of total GDP (UNCTAD, 2005).
As part of its economic and social development, the Governments of Nigeria has focused on the promotion of private initiative and participatory development. As such, the Small and Medium Enterprise (SME) has been identified as a key lever for development and has effects on the rest of the economy in terms of job creation, production diversification and utilization of productive resources (Adewusi & Boolaky, 2012). The emergence of SME companies is a response to a changing socio-economic context, rural exodus, failure of economic reforms, unemployment and income inequality. To date, the number and importance of jobs of these companies have not shown properly. Present era is witnessing the expansion of micro enterprises for rural and urban populations to fit them into the economy. To the point, this group today creates number of jobs, and contribute a major share in Nigeria’s economic fabric. However, funding is needed to help create and develop their activities. Economy of a country, therefore, cannot flourish if the various forms of financing offered by financial institutions do not allow SMEs to meet their needs (Nduka, 2013).
The economic performance of industrialized countries during the twentieth century confirms the important role of SMEs, both in the growth in innovation and job creation. By studying the capitalist economies it is confirmed that entrepreneur is an economic leader and that SMEs are substantial cells of the market economy, and a key to the success of capitalism. These companies have become key players in the economy which promotes and accelerates the pace of development. The growing importance of SMEs also confirmed statistically. They represent more than 90% of total companies in most countries in transition (RAM, 2005), or 98.1% in China, 96% in Vietnam and 99.9% in Hungary. They are an effective instrument jobs and contribute significantly to GDP.
Despite the interest shown by governments, SMEs in transition countries still face difficulties in their growth and development. Their difficulties of funding have long been an issue since the lack of capital remains a problem in many countries, even in industrialized countries. Although governments have created programs to support and exert pressure on financial institutions, SME access to external finance is a chronic problem. Several studies, including those of Beck and Demirguç-Kunt (2006), SQW (2005), RAM (2005) and Bukvic and Barlett (2003) find that these difficulties are a major obstacle to the development and global expansion of SMEs, especially in countries in transition, where the financial system is still underdeveloped (Feakins, 2004).
Several studies like Cassar & Holes (2003) show that financial structure of SMEs can be explained by the theory of hierarchy that states to finance their activities, companies would favor, in order to internal to external financing and, in the latter case, the debt financing than by equity. A financial structure dominated by debt could be the result of a management strategy to maintain control over their business. Moreover, the dominance of external debt financing there among SMEs, they are particularly sensitive to the loss of power generated by financing by external equity. Bank lenders, whose mission is not to take risks, do grant funds only if they observe high capacity repayment in borrowers. In other words, the primary concern is the preservation of lenders capital or repayment capacity of borrowers while business risk may increase the probability of default.
From the perspective of entrepreneurs, the risk is a normal part of any project and is part of the activities of daily business. According to Gasse & D’amours (2000), entrepreneurs are passionate people who take calculated risks. This difference in vision between entrepreneurs and donors raises conflicts which make them difficult to reconcile risk assessment and its importance. Entrepreneurs monitor performance in determining the level of risk, while bankers control the risk by focusing on performance. There is therefore a context of asymmetric information often high between the two sides which is the main source tensions in their relationship. In the credit relationship between donors and SMEs, information asymmetry is defined as the fact that borrowers have more information than lenders about their own business (Fraser et al. 2001).
Since independence, Nigeria has experienced a double pressure: a population growth of rare magnitude accompanied by a sudden access to global markets. The most visible manifestation of the process of adaptation of Nigerian population is the importance of migratory movements towards the south, towards the coast, and especially to cities (Enyioko, 2013). More generally last period saw the peak and decline around systems of rent sharing and the emergence of economic and social competition. This pressure, which has profoundly influenced the development of the region, is expected to remain high in the next thirty years, causing further changes, which is why the long-term thinking is required (Hagher, 2011). Despite the magnitude of these challenges, thanks to the flexibility of the popular economy, the Nigerian economy has been able to provide essential goods and services to their populations; but this was done at the expense of more traditional economic growth.
The African, Caribbean and Pacific (ACP) show a growing interest in trade in services. Between 1990 and 2006, world exports of services have more than tripled, reaching more than 2.8 billion U.S. dollars (Heron, 2013). A growing service sector is generally associated with higher exports of goods and higher productivity. The EU trading partner longstanding ACP is the largest exporter and importer of services in the world. In 2007, it imported more than $ 400 billion of services from the rest of the world (Heron, 2013). Trade in services is known to be difficult to measure and monitor. Identification of barriers to exports of services is equally difficult. Barriers to trade in services are generally in the form of non-tariff barriers instead of simple tariffs.
Some of these barriers are an integral part of national laws and regulations. These legal barriers to cross-border trade in services are often overlooked in discussions on access to markets, as they are not an explicit and direct discrimination against foreigner service providers, but rather intended to protect existing providers of newcomers, as they are domestic or foreign. Taken together, all these factors tend to reinforce the misperception that service contracts are relatively open. In truth, it is only recently, with the adoption of the EU directive on services in 2006, the European internal market for services actually began to open (Heron, 2013).
There are numerous issues and challenges which have always hindered the success and steady growth of Nigerian companies in global markets. Raw material inputs primarily comprises on calico, chemicals, dye stuffs, khaki fabrics, finished garments and textiles (such as clothing, blankets and curtains etc). Most of these supplies are primary input material for manufacturers. Some of the common challenges and issues which are affecting the trade are packaging and poor finishing of products which are major export hurdles when it comes to exporting in US and EU markets.
There are few technical difficulties and high tariffs rates which are contributing in Nigeria’s inability to fulfill their commitments and make timely delivery. Smuggling is considered as one of the biggest hindrances by many manufacturers in Nigeria in actualizing its true production and export potential. In many cases, textile products are smuggled from adjacent countries without fulfilling custom services regulation (Goldhammer, 2011). This results in the invasion of foreign products in Nigeria’s markets, the massive price difference among smuggled products and Nigeria’s original brands further squeeze the domestic market for local manufacturer who are trying to manufacture quality products and fulfilling regulations. The drop in output, generally, is an outcome of low market demands, high production cost, dumping, imitation and smuggling from foreign markets abroad (Goldhammer, 2011). Unfortunately, growth in the imports of textile usually concurs with a turn down in an export which traditionally was a major source of bringing and raising foreign exchange in Nigeria.
Corruption is a concept exploded with many related offences, criminal law differs from the corruption in the strict sense but is a single unit on the offence as that of the sanction. Corruption is a global phenomenon. It affects all areas of private and public business in Nigeria, at all stages of the formation of a public contract, either in the award or during execution (Oji & Oji, 2010). Corruption is a common notion that it is extremely difficult to identify.However, as a hardship within the economic endeavor of a nation; different stakeholders should combine forces to ensure perfection in terms of trade affairs. Facilitation payments in Nigerian economy pose problems of interpretation, business managers and legislators alike want to discriminate between acceptable and unacceptable practices. The problem is to find a formulation that acknowledges the difficult situations in which companies may find themselves without creating gap in the anti-corruption standards. Some companies prohibit facilitation payments altogether and, in general, seem reluctant to use it. Some organizations tolerate them explicitly while other offer transparency mechanisms (e.g. require that facilitation payments are pre-authorized by the senior management of the company and duly recorded in the books) (Rose-Ackerman, 1998).
Most of the companies of Nigeria do not fully prohibit accepting gifts or entertainment from business partners. The boundary between acceptable business practices and corruption is rather vague, which is probably inevitable. Companies use terms and very different concepts to indicate what is allowed or not (Gordon & Maiko, 2001). The concepts include, for example, gifts and entertainment "whose value is not excessive" or that are "consistent with the standard business practices: etc. Considering the importance given to the notion of gift and entertainment, one might think that the public opinion and social pressure play a role in the evaluation of companies what is or what is not an acceptable conduct.
In recent years, Nigerian companies have faced many obstacles which limit its ability to expand and participation in global activities and maintenance of infrastructure. Even if the work does not require high technical skills and could be performed efficiently with intensive labor techniques by small local businesses, most of them are unable to obtain contracts to bid for public tenders because their low managerial capacity does not allow them to submit acceptable proposals or to meet the multiple administrative requirements implied by the complex procedures of public procurement (Halpin & Senior, 2011). On the other hand, delayed payments to businesses, due to excessively long administrative procedures and the difficulties of public finances, are straining their cash and working capital. Only large companies with substantial resources can afford to wait that long (Halpin & Senior, 2011).
Many technically capable companies fail to appreciate the importance of proper documentation regarding customer organizations/employers by concentrating widely on technology, processes and data. By including knowledge of relationship and communication management within the general matrix of abilities required to create a business plan or cost plan, etc.; the company can change the perspective and use documentation not as an ‘administrative overhead’ but as a precious resource (Abbink & Salverda, 2013). By applying suitable communication plans, the company supports the access to the knowledge required to grow and update the strategies accordingly. Though concerns can differ from jurisdiction to jurisdiction, similar stakeholders are related throughout the procedure in differing areas. Relationship management of Stakeholders in the business relates considering the duty of every stakeholder in order to ensure that particular entities can perform jointly on behalf of business and their customers.
There are challenges normally associated with Nigerian companies, which want to expand their business globally. These are generally risk for the contractor: compensation and / or insurance may be required by the contractor to avoid damage or loss of plant, equipment, injury of third parties and damage to property or loss. It may require supervision by an adviser of insurance which is necessary to cover challenges that are not covered in the contract. Each type of contract contains different types of challenges between the parties. It is possible to select the most suitable contract for the customer's requirements and, if necessary, make corrections to make it more effective (Salawu, 2010).
Challenges can be transferred in several ways, either from the client to the contractor or to the insurer, of the contractor to the subcontractor or the insurer or the designers to the insurer. The most common concern of each of the parties that wraps a project is to maximize revenues, because otherwise, these parties would suffer major economic impact. Different perspectives of the challenges depend on the parties involved, such as the perspective of customer, of the insurance company and the contractor or builder etc. The contractor should provide all information related to the construction contract, i.e., the time of term, the cost of the project, the rate of return etc. to all the stakeholders in order to impart information which will help to maintain the cash flow in the short term and so maximize the profits of the company in the long run (Haris & McCaffer, 2005).
New trends that have led to environmental regulations increase the due diligence responsibilities required of contractors. The businesses must respond with innovation issues that arise in terms of cost, quality and respect for the environment. The cyclical nature of the business makes labor a crucial issue for the performance. In fact, the numbers are steadily reduced, which poses a problem for the recruitment of skilled labor when the need arises.
In recent decades, changes in the investment policies of the State has generated great impact on business organization, equipment and training staff. Simultaneously cyclical adjustment processes of public investment and Disorganization State in the areas devoted to investment have created problems in the capabilities of principals to resolve critical situations (Ashworth, 2006). The absence of an executable investment plan has also affected the formation of human resources. The level of investment in both the maintenance and replacement, and in the development of growth and modernization of infrastructure, is scarce and requires a great effort to change the capitalization of the infrastructure through rational plans and sustained policy of public investment (Ashworth, 2006). Despite such challenging conditions, Nigerian companies have maintained and increased their equipment and organization, adapting to short cycles and investment setting the state has faced (Oladapo, 2005).
The cost estimation is a technical process of predicting business costs. Oladapo (2005) argue that the estimate may not be a precise technical and analytical process; it is to a large extent a subjective process. Corroborating this position, Jobber (2010) argues that it is generally understood that the cost estimate is not an exact science. The accuracy of the cost estimate is crucial for all parties involved in business. Actually one inaccurate estimation can lead to invest in a project that is actually economically unfeasible (Daneshgari, 1999). The Nigerian businesses today are characterized by a generalized abandonment due to excessive costs of projects beyond the means of most clients (Aibunu, 2002). Not surprisingly, the general public is blaming the project consultants, and in a very special way, to the analysts of the projects. While it can be argued that most of the businesses in Nigeria suffer from excessive costs because it is not possible to accurately predict inflation trends, this does not absolve the cost professionals responsibility for generating preliminary cost estimates exactly (Oladapo, 2005).
Some of the most important legal barriers for Nigeria on trade in services include access to distribution channels restrictions, quotas regulating the number of suppliers in a given market, territorial restrictions, requirements of nationality and residence, of authorization and registration procedures long and complicated restrictions on property purchases, and difficulties for the recognition of professional qualifications.
Some of the basic problems of Nigerian companies, who want to expand globally, are as follows:
· Delay: the administrative procedure to launch a business is very long, complicated and involves making representations to several state entities;
· Lack of infrastructure: inadequate reception facilities limit the birth and the growth of the modern sector;
· Shortage of local raw materials: insufficient input from local market mainly because the entrepreneurs do not have the opportunity to buy quantity and that because market size is generally small and there is no special organizations or associations to which they may delegate such task;
· Absence of policy: governments have little interest (they currently have other priorities) than to provide a clear policy to the companies which want to expand for global markets;
· Lack of technical support: entrepreneurs have difficulties to engage in modern productive activities. They have good intellectual and technical potential but their basic training does not give them the means to undertake their own business in the modern sector with a real chance of success. This explains the very large number of small individual companies and jobbers (Okonjo-Iweala, 2012)
Such challenges may result in:
· Failure to stay within the budget;
· Failure to stay within the stipulated delivery time in the contract (Majid, 1998);
· Failure to maintain the required technical standards in a satisfactory manner in the product quality (Ogunsemi & Jagboro, 2006)
Demands and requirements of buyers, although not binding, may also constitute serious obstacles for exporters of services. In the minds of consumers, the quality of services is closely linked to the image and reputation of the supplier. Consumers want to be assured that their needs and requirements are understood. Barriers exist, therefore when the foreign services are unable to demonstrate their abilities in a market or to communicate with their potential customers. These "soft" obstacles, determined by the market, may constitute barriers as important as the legal obstacles border trade in services, although exporters and trade support institutions are often given little importance. Examples of these barriers include lack of profile and credibility, poor language skills, cultural distance, the difficulties of moving to the market and the lack of access to networks and appropriate information systems.
The retention of risk by a client may mean an extension depending on the terms that exist in the contract between the client and third parties involved in the project. Contractual relations may vary from one contract to another. The choice of the type of contract, the acceptance of the conventional way, and any correction made, can affect the location of challenge between the parties (Mosaku et al, 2006).
Probably the greatest consequence for managing challenge in these non-traditional contractual arrangements comes from the administrative structure and in particular the responsibility given to the management. In many of the agreements mentioned above, the contractor involved in the pre-construction phase and the direction of design and construction are integrated (Clogh, 2004).
In Nigeria, young people still prefer to remain unemployed than to work in the small organization (Roper et al, 2010). Many businesses have been forced to rely on the foreign workforce and, especially, to workers coming from the nearby countries. According to official estimates, foreign labor would have constituted 80 per cent of the workforce of the construction in 1992. Employers in this sector agree that it will continue to rely on imported hand- lumber in the foreseeable future.
There is a growing demand of workers but the salaries and other benefits do not appeal the worker towards it. It is unfortunately not a problem of short duration but instead a problem that cannot be resolved unless the small businesses happen to touch a new generation of potential workers. Casual and temporary employment is now the standard in the SME sector. This changing structure of employment has greatly affected the working, rights as well as training of human resource in construction sector.
Governments have shown interest in intervening in the economic process. Despite the proposal of the classics, the state had to intervene on several aspects of the economy in the nineteenth century. Due to the impact of industrialization, governments had to intervene to alleviate the appalling working conditions of the working class (Grossman & Helpman, 2011). The regulations applied by the government must ensure that it would not jeopardize the equitable market access (Karagiannis, 2001). Designing and applying regulations is also a matter of prime importance at a time when the globalization of the business is dependent upon the less intrusive regulatory framework. It is important that government regulations must not interfere with the business’s rights to manage its affairs locally as well as to accommodate the needs of the stakeholders.
In a nutshell, governments should be more cautious while applying regulations because any regulation which negatively affects the free market access, control, fair competition, ownership etc. of the businesses, would jeopardize not only the expansion plans of the businesses but also proved to be an impediment in the effective, efficient and economical communication and trade between the states and governments.
In addition to the traditional advantages of seeking customers globally makes it imperative for every company no matter how small should think from the start to seek other markets. This sounds interesting, but there are a lot of failed attempts to leave international markets for businesses of all types and sizes. Many investors usually strategize and invest without prior research on the political effect in their new country of interest. Most business owners therefore ignore all the parameters of sovereign governments if they have well articulated business strategies (Adejumobi, 2011).
Nigerian companies, who pursue global business expansion plan, involve themselves in vigorous competition. These organizations and business are usually guided by policy of result oriented and quality performance. Through this demand to achieve more by creating new market niche, their strategies are always formulated with the aim of gaining greater market environment (Goldhammer, 2011). International business strategies in many instances prioritize on taking all advantages of customer needs and availing to them as they require. In this case, best strategies must articulate and steer a course between inevitable business pressure and constant demand of rampant growing world.
Business organizations in international level must always cut a clear line between strategic action and strategic plans. Business strategy should therefore not be just the laid down statements that are aired out more like political speech. They should thus have a clear outlook of what the business is mandated to do in the market level (Hagher, 2011). All business strategies should have a concrete meaning to both the employees and the entire management of the organization.
Political risk is one of the fiercest calamities that hinder progress of many business strategies in Nigeria. Investors and major corporations face this threat in the running of their businesses. Many investors face this problem due to political decisions within a country. Any political risk that a business faces can be viewed as the risk of strategic, monetary, and in some instances personnel loss for an organization (Nwosu, 2008). The non market constraints like fiscal and macro economic policies and business strategies in international level become hard to implement them.
Broadly speaking, political risk refers to problems that businesses face due to poor decision making, planning and implementation (Nwosu, 2008). This can also be due to any political change that automatically diverts business from achieving its objectives. Getting full awareness of probability of risk and its impact sheds light on the political risk scenario. Many business strategies fail to materialize due to likelihood of various political events such as taxes which hinder the realization of goals by the organization. Political risk in many countries affects businesses by reducing their anticipated yields and proper investment. This is usually because they lack proper atmosphere in which to carry out their businesses effectively. Political risks are categorized into macro and micro level risks (Nwosu, 2008).
Macro-level political risks usually have similar impacts all over the world when they occur i.e. they have similar characteristics. Macro-level political risk targets non specific risks. There is a huge misunderstanding that macro-level political risk is only experienced at the height of country level risk. In other terms, events that are based on local level in many instances affects businesses at macro-level. There are many types of macro-level political risks which include regulatory changes, government currency, corruption, sovereign credit defaults and government composition changes (Nwosu, 2008). All these kind of events pose great challenge to portfolio investment and foreign direct investment risks that can affect the entire investment adversely.
Micro-level political risk is project specific risks. In addition to this scenario of political risk, businesses always have to guarantee attention to the entire industry in which they are operating and that of their firms in the local economy. Analysis of these political risks in any economy that businesses are intending to operate may give political climate situation in that sphere of business and how it may affect the business endeavor (Nwosu, 2008). Knowledge of political risk is also an important aspect to government project decision making in instances where government projects can be complicated due to availability of problem. Political risks that hinder progress of business strategies can also be analyzed in views of international political issues, corporate responsibility, business practices, and risk mitigation strategies.
Established in 1995, the World Trade Organization's (WTO) mission is to liberalize trade in goods and services worldwide. Conferences of the WTO Seattle to Hong Kong in 2005, showed vividly the new weight of this organization, become a major issue in North-South relations, but also in debates through civil society. Heir to the GATT (General Agreement on Tariffs and Trade General Agreement on Tariffs and Trade) and numerous rounds of negotiations on the liberalization of world trade since World War II, it has emerged as a key organization in the 'international economic architecture, with four main tasks:
· Manage and control the free trade agreements established by the Final Act of the Uruguay Round of 15 April 1994;
· Arbitrate trade disputes between States;
· Broaden the scope of free trade to new areas by opening rounds and
· Periodically assess the trade policies of the Member States according to the mechanism of TPR.
Two principles are used by WTO to ensure that the bilateral trade between countries are impartial and non discriminatory. These two principles are the Most Favored Nation (MFN) status and National Treatment. In giving Most Favored Nation (MFN) status different members of WTO allow a specific member of WTO some preferential treatment in trade than that provided to other members. For example, if a country changes its tariff for a particular product from a particular country, this rate is applied to all the members of WTO. While the National Treatment is the principle in which the goods which were imported from other countries must receive the similar treatment as that of domestic products. The tariff does not violate the national treatment.
Bilateral and regional investments have increased over the last ten years and new agreements are being negotiated. The investment agreements have their common clause in the Most Favored Nation (MFN), which ensures that parties to a treaty granting a treatment no less favorable than that accorded under other treaties in the areas covered by the clause. MFN clauses have thus become a significant instrument of economic investment liberalization. Moreover, the MFN clause, giving investors all party beneficiaries, in similar circumstances, treatment no less favorable than the closest or influential partners a given country may negotiate in areas covered by the clause, avoids the economic distortions that further selective liberalization, country by country. This treatment may result from the application of treaties or laws or administration of the country as mere practice (Davey & Pauwelyn, 2000).
Nigeria has repeatedly stressed that its service exporters and trade support institutions need support to understand the complexities of international services markets. The information and resources available online are on the increase but remain limited in number and scope. The World Trade Organization (WTO) provides a wealth of information on trade in services through its service "Services Gateway Page - WTO," but the information is designed for policy makers, negotiators and researchers, and non-exporters (Hauss, 2010).
Under the General Agreement on Trade in Services (GATS) of the WTO, each member of the EU has established a GATS inquiry points to provide direct support to exporters of services and facilitate access to Information for service providers from developing countries. However, that aid is effective, potential exporters should be able to make requests for specific information. In addition, the information point must be able to provide very detailed feedback and sector specific information. This is not always the case. In several EU countries the information point GATS employs only one person in the Ministry of Commerce or the economy. This person, who often has other functions, often does not have time to respond to each application in detail. In the best case, when a specific application receives a complete response, it is not necessarily documented and made public, and therefore other potential exporters cannot benefit (Hauss, 2010).
But knowing how to find and systematize all relevant information to assess the constraints and opportunities requires a good deal of time and effort, as information is scattered among different sources and often only available in the language. It remains difficult for service exporters in Nigeria and aid agencies to have access to specific information, structured and ready to use. While online resources are growing, they usually provide only general information on the various aspects of trade in services. It is only recently that studies on the constraints and opportunities by sector service contracts have been made available.
The actual removal of the information gap still requires additional efforts. One way to achieve this would be to encourage the creation of an umbrella organization to help Nigeria trade a market access of EU and US online information portal comparable to the database. Through easy access to the center of user information, potential service exporters would be able to evaluate sub-sector conditions and market access requirements in different countries.
Although it is likely that in its initial stages as a tool cannot be able to respond to all requests, it could over time become a busy reference center. Its success will depend largely on its ability to effectively compile the increasing amount of information to assist exporters of services that is currently scattered in different places. Another possibility would be to expand the Export Helpdesk of developed countries to include services exporters. These two possibilities are not necessarily mutually exclusive of each other, but coordination is necessary to avoid duplication of effort and ensure wide coverage.
The MFN clause has for centuries been a cornerstone of trade policy. Its existence dates back to the 12th century but the term Most Favored Nations was actually coined in the 17th century (Yi, 2004). In the 15th and 16th centuries, different countries have proliferated MFN clauses in the treaties to promote bilateral trade and commerce between them. The U.S. has inserted an MFN clause in their first treaty, concluded in 1778 with France (Yi, 2004). In 19th and 20th centuries, clauses of MFN were usually included in trade, commerce and friendship treaties between different countries (Davey & Pauwelyn, 2000). The MFN treatment was fundamental obligation of trade policy under the Havana Charter, the members to commit to take due account should be avoided discrimination between foreign investors.
Treaties and bilateral trade and investment agreements which were concluded after 1950 usually contained the MFN clauses; especially, after the abandonment of the proposed implementation of the Havana Charter (Yi, 2004). Its importance in international economic relations is evidenced by the fact that the MFN treatment provision of the General Agreement on Tariffs and Trade (GATT) (Article 1, General treatment of the most favored nation) and the General Agreement on Trade in Services (GATS) (Article II, Treatment of Most Favored Nation) states that it will be granted "Immediately and unconditionally" (although in the case of GATS, a Member may maintain a inconsistent measure with this provision provided that it is contained in the Annex on exemptions the obligations and meets the conditions set out in that Annex.)
The international political issues are the main contributors of political risk. This occurs through nationalization of activities within the country that have formulated business strategies. In recent scenario what has emerged is the issue of ‘creeping nationalization’ under which a sitting government through legislation and regulation may alter all terms guiding the operation of the businesses. To protect against this type of political risk, businesses need to critically analyze their business strategies and discuss on stabilization and equilibrium issues with the government in place. Through this, businesses will be able to operate freely and effectively under their laid down international business strategies (Nwosu, 2008). Also, this kind of strategy clause helps in the attainment of fiscal or economic benefits that may accrue in that particular country where the business is operating. To protect an international business strategy from perils of currency controls, a business enterprise should make sure that no issues arises that pertains to currency and financial transactions. The business management should also be endowed with vast knowledge on how to convert payments and cash flow into currencies that are in tandem with market rates (Nwosu, 2008).
Corporate responsibility formulation as a business strategy in a host country demands proper review and check up that is efficient to reduce any political risk that may arise (Olusoji & Oluwasanmi, 2012). A business that is operating in a foreign country should always bear in mind that it ranks as an outsider in that country and thus it should steer away from political issues within that nation. In this case, a business should always be keen to operate within the required parameters so as to keep away from being affected by the political risk problems (Olusoji & Oluwasanmi, 2012). These issues include matters of the business being connected with labor unions and other internal groups in the country that have a national outlook. Therefore businesses in foreign countries need to uphold diligence in all their activities and more so be effectively alert on cultures and traditions of that country (Olusoji & Oluwasanmi, 2012). This analysis of the country by the business entity will enable it to equip itself with appropriate approaches that will facilitate international strategies. This analysis will also enable the business to operate ethically within the foreign country.
In many foreign nations, some business organizations are always welcomed whereas other business enterprises are restricted from initiating their business entities within that country. Relationships are therefore much effective for business to prosper and achieve its targets and goals. Therefore a business entity that carries its activities as an efficient corporate citizen and also indicates its willingness in corporate responsibility will always reap considerable yields due to its connection with the government of that nation. On matters pertaining to corporate social responsibility, a business should involve itself in local promotion of infrastructure projects and other effective projects that will guarantee a reputable name in the country at large (Olusoji & Oluwasanmi, 2012). In a nutshell, activities of corporate social responsibility are many and thus it is upon the business entity to choose which ones are the most applicable.
A business that has an intention of prospering in foreign field should always check effectively on the importance of international business strategies. A business should thus involve in practices that are well recognized in the international level. These practices should be issues to connect with ethical standards and fair dealing in business activities. Most companies or businesses design a code of ethical conduct which their employees must adhere to when formulating their business activities duties (Olusoji & Oluwasanmi, 2012). Many organizations avoid political risks in this manner by developing seminars and workshops that enlighten their employees on how to carry out their businesses.
Risks are some of the common elements in a business enterprise. Therefore it is mandatory and important for any business organization to analyze all the risks that a business is likely to encounter and how they can be solved. Political risks can also be categorized into three parameters including ownership risk, operating risk and transfer risk (Nwosu, 2008). Ownership risk refers to the danger in which a business entity or a firm is threatened by means of confiscation. This threat derails a business from achieving its targets and goals in foreign land. Operating risk is a threat which business experiences in international level due to various operations that limit the safety of employees in their working environment. Employees in this case are threatened through changes in laws of that country, radical change in environment standards, policies concerning taxation, and many more negative issues. Transfer risk is an aspect of political risk whereby government of the foreign country directly interferes with businesses ability to transfer funds out and within the country. Therefore the business strategies are avoided and as a consequence, the business growth is limited.
In a nutshell, political risks can be categorized into international political strategies, corporate responsibility, business practices and risk mitigation strategies (Nwosu, 2008). These elements are very effective for any business that has intention to expand its growth tentacles. International political strategy enables business to look into ways in which it can operate within a country without encountering major problems from the government in place. Corporate responsibility aids businesses to venture effectively in business at the same time gaining public acceptance due to the type of projects that it is supporting in that country. These projects are usually not related to the core business activities of the organization. Risk mitigation strategies are also effective for a business because they facilitate the business in identifying the risks that may occur and how these problems can be solved. Therefore a business with intention of operating beyond boarders should always consider the effects of government in foreign country on its operation once it has started the operations.