UPPSALA UNIVERSITY Department of Business Studies Master Thesis Spring Semester 2012
Networking and knowledge creation in Nigeria
A case study of a Swedish company’s establishment in Nigeria
Authors: Dafe Eghagha Leyla Mehtap Duman Tutor: Cecilia Pahlberg Date of submission: 2012-05-25
Abstract
In this study the authors wanted to find out what role networking and knowledge play for a Swedish company that wants to enter the Nigerian market. This was done by using a qualitative approach and conducting interviews with HQS AB a Swedish company that entered Nigeria, the Swedish Trade Council and the Nigerian Embassy. No studies have previously been done about the internationalization process for a Swedish firm entering Nigeria therefore this essay provides empirical findings that can be useful for Swedish firms that want to enter Nigeria and for researchers within international business. The result from this study indicate that HQS AB had a successful market entry to Nigeria mainly because networking help them get in touch with partners that could add value by providing valuable connections that eventually helped HQS AB to start their business in Nigeria. Moreover, by attaining tacit knowledge in Nigeria, HQS AB managed to handle challenges in Nigeria such as the complex bureaucracy system and the business culture in the country.
Keywords: Internationalization process, networking, knowledge, trust, HQS AB, Nigeria, Swedish Trade Council, Nigerian Embassy
Forewords
We would like to thank those that did the interview for the essay, Bo Ekman from HQS AB, Benedict Onochie Amobi the Nigerian Ambassador and Nina Rehnquist from the Swedish Trade Council in Nigeria. These people have given us valuable information of how the internationalization process looked like for a Swedish company that entered Nigeria. We would also like to thank Desirée Holm and Rian Drogendijk from the department of Business at Uppsala University for their support in starting a research in this area. Finally we want to thank our tutor Cecilia Pahlberg for her feedback and guidance during the writing of this essay.
Uppsala May 25th 2012
____________________ ____________________
Leyla Mehtap Duman Dafe Eghagha
Table of Contents
1. Background ... 1
1.1 Problem Formulation ... 3
1.2 Limitation ... 4
2. Literature Review ... 5
2.1 Emerging markets ... 5
2.2 What does the internationalization process look like? ... 6
2.3 Networking in the internationalization process ... 7
2.4 Knowledge in the Internationalization process ... 9
2.5 The revised Uppsala model... 10
2.6 Summary of the literature review ... 11
3. Research method ... 13
3.1 The respondents ... 14
3.2 Operationalisation... 15
4. Empirical findings ... 18
4.1 The first meeting with the Nigerian Ambassador ... 18
4.2 A word of advice ... 20
4.3 The cultural clash in Nigeria ... 21
4.4 Networking and the start of HQS AB’s business in Nigeria ... 23
4.5 Lessons learned for HQS AB and Ekman ... 26
5. Analysis ... 28
5.1 HQS AB and the Uppsala Internationalization process model ... 28
5.2 What role does knowledge play for a Swedish firm that enters Nigeria? ... 29
5.2.1 Explicit Knowledge ... 29
5.2.2 Tacit Knowledge ... 30
5.3 What role does network play for a Swedish firm that enters Nigeria? ... 31
6. Conclusion ... 34
6.1 Critical review ... 35
6.2 Future research ... 35
7. References ... 36
8. Appendix ... 40
1
1. Background
This chapter presents background information about Nigeria, problem formulation, purpose and limitations.
“The continent is home to many of the world’s biggest opportunities. The trick is deciding where and how to seize them” (Chirango et al, 2011.p.117). The quote refers to the dilemma that many executives from the western world encounter when deciding to enter the African market. The economist emphasized, in their December issue, that the continent is going to play an important role in the world’s future economic growth. However, Africa is still the world’s poorest continent but it is extraordinary that many countries in Africa such as Angola, Nigeria, Mozambique and Rwanda have had a strong GDP growth in times of economic crisis in the western world (The Economist, 2011).
Let’s now draw our attention towards the country that has had the greatest GDP growth in nominal terms in Africa in the last 10 years; The Federal Republic of Nigeria. The country’s GDP is larger than that of all countries in West Africa combined and larger than all countries in Africa except South Africa (Okpara and Kabogo, 2011. p. 23). Nigeria has made a lot of political reforms, which have contributed to an outstanding GDP growth of an average of 8,5% per year from 2000-2011 and this can be compared to the golden era in the 1960s that the Swedish economy enjoyed (AEO, 2011; SCB, 2012). In 1999 the former dictator Sani Abacha died and Olusegun Obasanjo took office after he was democratically elected. Obasanjo took over a country that had a reputation of being macroeconomically mismanaged, corrupt and having insufficient human and legal rights (Swedish Trade Council, 2010). Obasanjo’s aim was to facilitate for the private sector in Nigeria and he managed to do so by increasing the quality of the infrastructure so that today it is easier for the private sector to operate in the country. Even though Nigeria has improved its macroeconomic situation, there are still a lot of political issues for the government to handle, such as the terrorist organization Boko Haram. Today Goodluck Jonathan is the president of Nigeria and his main focus is to increase the level of FDI to Nigeria and broaden Nigeria’s exports from the oil sector that Nigeria is extremely dependent on today.
2 Nigeria’s economy is highly dependent on oil, which contributes approximately 95% of export earnings and about 75% of government revenue (Okpara and Kabango, 2011.p. 23).
Nigeria’s population of over 150 million people and a growing middleclass makes the Nigerian market attractive for foreign investors. FDI from Sweden to Nigeria is at a moderate level but the exports from Sweden to Nigeria has increased over the last years and was estimated to 3,5 billion SEK in 2009 which made Nigeria Sweden’s second largest export market in sub-Sahara Africa after South Africa (Amobi, 2012). Last year the exports increased with 29 % from Sweden to Nigeria and are now 0,4% of Sweden’s total exports. Today there are 9 Swedish companies that are located in Nigeria and an additional number that use agents in Nigeria instead of entering the market directly themselves (Rehnquist, 2012). Ericsson for instance has been in Nigerian since 1980 and is well established on the telecom market and many more Swedish companies are planning entering the Nigerian market (Rehnquist, 2012).
The Swedish Trade Council, which is partly owned by the government and the Swedish organization Svenskt Näringsliv, has recognized a growing demand from Swedish and Danish companies for advisory services to help companies to get into Nigeria. The Nigerian Office Manager for the Swedish Trade Council indicated that the exports are going to increase since the Swedish Trade Council already in February 2012 has reached 40% of its target sales for the whole year of 2012 (Rehnquist, 2012).
One of the companies that have contacted the Swedish Trade Council is a Swedish company called HQS AB that is specialized in providing reserve power for corporate and community needs. The owner of HSQ AB, Bo Ekman, has been in the Nigerian newspaper, met the Nigerian president Goodluck Jonathan, ministers, commissioners and ambassadors, to name a few, in order to strengthen his network, to attain knowledge and to establish HQS AB on the Nigerian market. Ekman argued that he had seen plenty of companies entering the Nigerian market and leaving it without having managed to create networks or to fulfill their goals that they had for entering the Nigerian market (Ekman, 2012)
3
1.1 Problem Formulation
Today a small Swedish company can get involved in business and exports to Nigeria which for 10 years ago would from our perspective be perceived as impossible because of lack of a sufficient transport system between the two countries. Today the biggest challenge in the internationalization process is, as scholars argued, to get into a new foreign business network and to attaining knowledge about that new market (Johanson and Vahlne, 2009). Business networks was defined by Anderson et al (1994) as the formation of inter-firm relationships with key business actors (Anderson et al, 1994). Knowledge can be of two different types: explicit and tacit knowledge. Explicit knowledge can for instance be laws, rules and statistics, which can be found through newspaper and data research. The most important type of knowledge is by many business scholars argued to be tacit knowledge, which could be for instance market knowledge and can be attained through networking or by being active in the new host market.
For Swedish companies, network barriers and lack of knowledge of Nigeria may be a hindrance for their market entry. Furthermore, Nigeria consists of more than 250 different tribes (Okpara and Kabongo, 2011. p.23) and it may therefore be troublesome to understand the very diverse cultures in order to get into the Nigerian business network. The Nigerian market is perceived as difficult by many and the “business culture is very different from the Swedish”, Markus Lundgren from Swedish embassy in Abuja stated in 2011 (Regeringen, 2012). It may therefore be a great challenge for Swedish companies to get into the Nigerian business network and attain knowledge in order to succeed in their internationalization process.
We want to dig deeper into what role knowledge and networking plays for a Swedish company that enters Nigeria. This essay is based on the views of three different actors in the Nigerian market: Swedish Trade Council, Nigerian Embassy and HQS AB. We find this subject important and interesting because very few studies have been done about Swedish companies in Africa and from our knowledge none has been made about Swedish companies in Nigeria.
4 Purpose
The purpose of this essay is to investigate what roles networking and knowledge play for a Swedish firm that enters Nigeria.
1.2 Limitation
The aim of this essay is not to generalize how every Swedish company act when they enter Nigeria but rather to highlight the subject of business between Nigeria and Sweden. Instead this thesis aim is to describe one case, HQS AB, and their way of entering the Nigerian market with help of the Swedish Trade Council and the Nigerian Embassy. We will not do a PESTIL analysis either since the focus will be on knowledge and networking.
5
2. Literature Review
The Literature review is mainly focused on emerging markets, internationalization theory, knowledge and networking. First, the subject of emerging markets gives the reader an insight into what the specific issues are that firms from developed countries tend to encounter when they enter emerging markets. The reader also gets a brief review of the subject of national culture.
The internationalization theory describes what the internationalization process looks like and it is mainly based on the Uppsala Internationalization process model. After that the reader gets to know more about what role networking and knowledge play for a firm’s internationalization process.
2.1 Emerging markets
Khanna et al. (2005) developed a framework of five important issues that companies need to overcome in order to be successful in their entrance into an emerging market. An emerging market is a nation with many business opportunities that is characterized by growth rate and how recently it has opened up to the global economy (Khanna et al, 1997). He argued that it is important to analyze the new market’s political and social system. That is because every country’s political system affects the labor, products and capital market. Furthermore, the firm needs to determine and find out how decentralized the political systems are and whether the politicians and bureaucrats are independent from each other. The social system, on the other hand, manifests itself in the market’s power center, such as media and the civil society. The focal firm also needs to find out how trusted they are among the citizens of the host country. If the firm has managed to create trust among the host country’s citizens it is going to be easier to operate in that host market (Khanna et al. 2005). The host country’s level of openness determines what the entry strategy is going to be like, he reasoned. If the new market does not allow FDIs, then it may be important to reconsider the strategy and focus on creating a joint venture or give license to a local investment partner. A firm that wants to enter an emerging market needs to consider the product market in the host country because it is common in emerging markets that advertising and market research have never been done before. Furthermore, the power of
6 customers is in general terms weak in the emerging markets because of a lack of consumer court.
The labor market must also be studied in the emerging market. That is because it may be easy to find and hire people for low level jobs but it is often difficult to find people that can work as managers. There are if compared to the western countries few recruitment firms in the emerging markets, this makes it more complicated to recruit and hire well-educated personnel. It is also of importance to be aware that the capital markets may not be fully developed which often results in problems in finding credit agencies (Khanna et al, 2005).
Understanding the culture in the foreign host country may also be of importance when entering an emerging market. In Barkeman et al (1996) research they described how Hofstede argued, based on both theory and practices, that some cultures are more distant and different than others.
Accordingly they suggested that multinational firms’ probability to fail in their internationalization process is going to be greater the more the demanding the acculturation process is (Barkeman, Bell and Pennings, 1996). Barkeman et al (1996), found that firms often face cultural barriers when they are expanding their business to a new foreign country and especially when the expansion involves a partner or a foreign firm. Furthermore, they also found that market entries tend to be more successful if the firm has experience from the host country’s culture or of other countries with similar cultures (Barkeman, Bell and Pennings, 1996).
2.2 What does the internationalization process look like?
Forsgren (2002) described Sune Carlson’s internationalization process as incremental because when a firm has entered a new market the firm will gain experience from that market which later can be used when the firm enters another new market. Through this process a firm could maintain control over its foreign venture and step by step increase their knowledge of doing business in foreign markets (Forsgren, 2002).
Sune Carlson laid the foundation for the Uppsala internationalization process model that was first made in 1977 in order to describe what the internationalization process for a firm looked like. When the model was first created the business environment was described from a neoclassical perspective, which meant that the business environment consisted of independent
7 suppliers and customers. Furthermore, psychic distance was at that time viewed as a barrier for going into a new foreign market (Johanson and Vahlne, 1977).
In the revised Uppsala internationalization process model the psychic distance is per say not the biggest barrier, instead the focus was put on networks and on being either an outsider or insider (Johanson and Vahlne, 2009). Business networks were defined by Anderson et al (1994) as the formation of inter-firm relationships with key business actors (Anderson et al, 1994). The business environment is today more described by scholar as a web of networks, which can be formal and informal. In the revised Uppsala model Johanson and Vahlne (2009) stated that learning and mutual commitment are important factors necessary to exploit opportunities in the foreign market (Johanson and Vahlne, 2009). However, knowledge may not always be accessible to everyone, especially tacit knowledge, and are attained through strong commitment between partners, which makes it possible to discover new opportunities. Therefore, Johanson and Vahlne (2009) argued that the internationalization process is more dependent on creating and exploiting opportunities than on reducing uncertainties such as the new culture in the foreign country (Johanson and Vahlne, 2009).
Accordingly, being an outsider is the biggest challenge in the internationalization process. That is because being an outsider means that a firm is not a part of a network in the foreign market that the firm wants to enter and therefore lacks knowledge about that specific market. In order to be successful in entering a new market the firm needs to become an insider, which means being a part of the foreign market’s business network (Johanson and Vahlne, 2009).
2.3 Networking in the internationalization process
A decision to start an internationalization process should ideally be based on trustworthy information and research on the new markets future possibilities. However, Brown and Cook (1990) found that successful exporter gave more value and importance to personal and experiential information sources than to objective information and market research produced by the government. Moreover, researchers have found that knowledge about opportunities in a
8 foreign market is often gained through networking. If a firm wants to find a trustworthy partner outside their own social network it is often a difficult and risky process, which may imply high search cost in order to find the right business partner. Therefore the decision makers tend to make their decision without sufficient information with a great deal of reliance put on their own network (Ellis, 2000).
Owens et al (2012) suggested based on his study, in China on joint venture in retailing, that a good partner will provide intangible resources, for instance new connections, which would lead to a greater business network within the business that is of interest. However, how multinational enterprises manage to find new partners and what criteria they uses have not been given a lot of attention by researchers. The research that has been made generally describe the selections of partners as rational and that it follows a linear path of identifying, screening, evaluation and eventually choosing one partner (Owens et al, 2012). On the other hand, the internationalization process is often characterized by uncertainties and therefore the linear path of partner identification may not be realistic in that matter (Owens et al, 2012). In international retailing the selections of a partner may even be characterized by opportunistic and reactive behavior (Owens et al, 2012). That is because the MNEs are, especially in an international context, sometimes not certain about which partner that will be best at serving the own companies interest (Ellis, 2000).
Therefore the MNEs tend to rely on their existing business network when they choose a business partner. Moreover, the potential benefits from a partner that is not in their network may be outweighed by the risk of the potentials partners’ unknown history (Owens et al, 2012). Smaller and medium sized firms may find it more difficult to go abroad than big MNE does because the smaller and medium sized firms may not have the same capacity of resources as the bigger ones have. Therefore it is even more important for smaller firms to manage their social capital and networks in order to overcome the difficulties of being a foreigner (Chetty and Angdal, 2007).
Consequently, a small firm with a small network may put more attention to trade fairs and using trade agents in order to strengthen their social network (Ellis, 2001). Establishing a local presence in the foreign market is the most effective way to develop social relations and for those that lack the resources to do so must rely on good connections of agents or intermediaries.
(Björkman and Kock, 1995)
9 Trust is a central concept in networking and in the Uppsala model therefore we are going to clarify trust and the implications of it. Research has shown that relationship with a high degree of trust will result in a greater willingness to take part in social exchange of ideas and opportunities (Nahapiet and Ghoshal, 1998). Trust is of a multidimensional character and it is manifested in a willingness to be vulnerable to another person. In order to be willing to be vulnerable to another person four beliefs must be fulfilled; a belief in the good intent of the other partner, a belief in their competence and capability, a belief in their reliability and a belief in their perceived openness. Trust is important in a relationship because it can open up access in a relation for exchange of knowledge and intangible resources. Moreover, trust can increase knowledge creation in a relationship especially in a situation that is characterized by a high degree of uncertainty (Nahapiet and Ghoshal, 1998).
2.4 Knowledge in the Internationalization process
Knowledge is of great importance when a firm wants to enter a new market. That is because if a firm’s knowledge about a foreign market is at a high level then the perceived risk for a costly and highly consuming market entry will be lower. Knowledge comes from experience from activities in the foreign market or from the firms’ network which may lead to a more differentiated view of the foreign market and the firm’s capabilities (Johanson and Vahlne, 2009). Acquired knowledge through experience is highly dependent on the individuals that have gained the knowledge and may therefore be difficult to share and given away to other individuals. This means that the ones that are active in the new market are the ones that will attain the knowledge about the new market (Johanson and Vahlne, 2009).
Knowledge is often perceived as something we simply have or do not have, however Polyani (1967) and Nonaka (1991) argued that there were two different kinds of knowledge, explicit and tacit. Market knowledge is of a tacit character and can therefore not be gained through acquiring information about the market for instance, for example governmental publications. The majority of the knowledge that people have is of a tacit character. People that have tacit knowledge may not be aware of it until they have been questioned about it. The tacit knowledge is therefore by
10 nature not shared in the business environment and the actors on the market are not aware of each other’s tacit knowledge. Tacit knowledge is important for a successful internationalization process, which makes it important for the ones in a firm that have gained it through experience to communicate the knowledge throughout the organization. Furthermore, the tacit knowledge may also be the roots for a company’s core competency because it gives a firm knowledge that other firms lack and improves the decision making for that firm (Nonaka, 1991). Håkansson and Ford (2002) argued that the best way to gain tacit knowledge is to be more socially active and strengthen the business network with new contacts. That is because most firms today are dependent on other actors than themselves to make their customers fully satisfied (Håkansson and Ford, 2002).
Explicit knowledge, on the other hand, can often be found through governmental institutions in written format and it is therefore easier to communicate than tacit knowledge (Nonaka, 1991).
According to Eriksson et al. (1997), if a firm lacks explicit knowledge it means that the firm doesn’t have sufficient knowledge about laws, rules and language in the foreign market. Eriksson et al (1997) discovered in their research that lack of explicit knowledge about the institutions in a foreign market and tacit knowledge will take time to overcome and will have an effect on the estimated cost of entering the new market.
2.5 The revised Uppsala model
(Johanson and Vahlne, 2009) The revised Uppsala internationalization process model
11 The revised Uppsala model can be found above which consist of two state variables and two change variables that affect each other. The purpose of the Uppsala model is to describe that the internationalization process is dynamic and an incremental process of attaining knowledge based on trust and commitment (Johanson and Vahlne, 2009). Knowledge is the upper-left box in the model and consists of opportunities, needs, capabilities and strategies. Opportunities are the most important part of knowledge because it is argued to be the driver behind the internationalization process. In the upper-right box is relationships placed that are in this model characterized by knowledge, trust and commitment between the two partners or more that are involved in the internationalization process. In the lower-right box can learning, creating knowledge and trust building be found. How fast learning, creating knowledge and trust is built is dependent on the existing level of knowledge, trust and commitment and if the opportunities that have been found is appealing to the focal firm. In the lower-left box is the network position that in earlier model was labeled as market commitment. Johanson and Vahlne (2009) argue that network position is more accurate because the internalization process is from their point of view persuaded within a network (Johanson and Vahlne, 2009).
The arrows depict that an increased level of knowledge about opportunities in a new market is going to affect the level of commitment in the new foreign market. The new level of commitment will affect the level of learning and trust building. Finally the new intensity of learning will affect the firm’s position in the business network in the host market. For instance if a company increases their knowledge about a specific foreign market, they may after that try to strengthen their commitment to that market, which will increase their learning and trust building that eventually may put the firm into a stronger network position that will facilitate their operation in the foreign country and become an insider. To sum up, Johanson and Vahlne (2009) argue that internationalization a dynamic process that is dependent on a firm’s knowledge, relations, learning and network position.
2.6 Summary of the literature review
In the literature review, we described that companies from the developed countries that wants to enter an emerging market have to be aware of that the political system, level of openness, product market, labor market, capital market and culture in the emerging market are often different from what they are used in their home country. The reader has also got to know the
12 revised Uppsala internationalization process model, which is the foundation in the literature review that describes how knowledge, relationship and learning can affect a firm’s network position in the foreign market. Knowledge and networks are two central concepts in the Uppsala internationalization process model that we have described more detailed in this review.
Knowledge can be categorized into tacit or explicit knowledge. Both are of great importance and will if acquired before the market entry facilitates the internationalization process. In order to attain the knowledge it is of importance for the firm to get into the business network, find a partner and create mutual trust in the foreign country that they want enter.
13
3. Research method
This chapter describes the process of how this study was conducted. There will be an explanation about why we chose the actors for the study and the different problems we faced during the study.
The empirical part of this paper is based on primary data collected from interviews with the Swedish Trade Council, the Nigerian Embassy and HQS AB. Secondary data was used in the background chapter that described Nigeria as a market and when the problem formulation was identified.
According to Bryman (2009) a study can be based on either qualitative data or quantitative data.
This paper has a qualitative approach since it consist of semi-structured interviews with open- ended questions (Saunders et al. 2009). The advantage with the qualitative approach used was that the researcher could gain more sensitive data from the participants (Saunders et al. 2009). A qualitative approach was more useful also because it was more flexible than a quantitative approach and it gave the interviewers the possibility to contribute with longer and deeper answers (Repstad, 2007). This is since we wanted to have an understanding about how a Swedish company together with the Swedish Trade Council and Nigerian Embassy worked together and build up networks and what kind of knowledge that was used in the company’s entry to Nigeria.
The reason for the having semi-structured interviews in this thesis was because we had different questions for the different respondents and we had the opportunity to have some follow up questions that occurred during the ongoing interview. Bryman (2011) argues that open-ended question in interviews can both have advantages and disadvantages. The benefits are that the respondents can respond freely in their own words. At the same time Bryman (2011) says that the disadvantages of these kind of interviews is that the questions asked might take long time to give an answer to since the respondents can talk outside the topic. This is something we were aware of and therefore we let the interviewed talk and later erase the parts that were not useful in the essay.
Our case study gave us the information necessary to understand the role of networking and knowledge in the internationalization process to Nigeria. The interviewers were conducted with
14 one Swedish company called HQS AB, Swedish Trade Council and the Nigerian Embassy. With these three different interviews, the essay got three different perspectives on the chosen subject.
These interviews also helped the researchers to gather more valid and reliable data that was relevant to the research question (Saunders et al. 2009). The interviews were face-to-face interviews and the information from the interviews was recorded with audio recorder (Saunders et al. 2009).
3.1 The respondents
HQS AB, High Quality Solutions AB, is a Swedish company that is established in Nigeria since 3 years ago. HQS AB develops a new and innovative concept known as energy stations, which consists of diesel tanks and an office module. The station provides reserve power for buildings and institutions such as hotels, mines and offices (HQA AB, 2012). HQS AB is a middle-size company and will not represent the entire Swedish market rather a part of it. The reason for this choice is that there are few Swedish companies in Nigeria and this was the one we could get in touch with. The CEO, Bo Ekman, made the interview after we had contacted him. It was a face- to-face interview. This company was a good choice for this essay since it could answer the questions we had about knowledge and network building. Ekman’s position in the company is that he is the one that has created all the connections in Nigeria. He is the one that has been meeting ministers, the President and other actors in the country. Ekman is the key figure in their business contacts in Nigeria and therefore a good source for this essay because he will be able to give us the inside information about how things were done. At the same time we are aware of the fact that his answers might be based on his own interest of promoting his services since he is also a consult for other Swedish companies that want to have more knowledge about the Nigerian business market and are helping them in their establishment in the country.
The second actor that took part in this essay was the Swedish Trade Council. It is an organization that helps Swedish companies enters foreign countries. The interview was with Nina Rehnquist, who is the office manager in their office in Nigeria for the Swedish Trade Council. She gave us the perspective of how they are helping companies in their network building and what kind of knowledge they are giving to companies before they come to the country and during their
15 establishment. Rehnquist position in the Swedish Trade Council is to make sure that companies that want to establish in Nigeria get the information necessary in order to operate in the country.
This information is given by making a market analysis and these analyses give the companies an insight into the opportunities and risks in Nigeria. Rehnquist's information may not be objective and therefore we looked critically on the collected information from her.
The third actor was the Nigerian Embassy. The interview was done with Ambassador Benedict Onochie Amobi. With his view in this essay we were given the official perspective of Nigerian government on collaborations with Swedish companies. This view helped us to see the situation from Nigerians perspective on how they perceive Swedish companies presence in their country.
Amobi is not only an Ambassador for Sweden but also to Norway, Finland and Denmark. The Ambassador Amobi have four tasks: Representative duties, ensuring that relationships are expanded and deepened between the Nordic countries and Nigeria, look after Nigerian citizens in the Nordic countries and to deepen the economic relationship between Nigeria and the Nordic countries.
3.2 Operationalisation
Relevant theories have been chosen in this essay to answer the purpose about the role of networking and knowledge. The literature review consisted of the revised Uppsala internationalization process model, Khanna’s emerging market theory, network- and knowledge theories. However, we couldn’t find any theories about the internationalization process for Swedish firms in Nigeria or Africa. We used an article about challenges that firms from developed countries encounter when they enter an emerging market. Ideally this part would have been about challenges firms from developed countries encounters when they enter the Nigerian market. We didn’t use any contradictory theories in the literature review which may have given the reader an impression that the theories used is the absolute truth. However, in order to not put too much attention towards the differences in the theories we could instead put more focus on the theories that was used and compare them more in detail to the empirical findings.
16 The actors were interviewed at different times in Stockholm and Uppsala with different questions but with the aim to get relevant data. The questions were formed after looking at the different theories and collecting some information about the different actors. Initially the questions were general but gradually narrowed down to more specific questions.
The interviews were done in Swedish and later translated to English since the essay was written in English. Two persons looked through the translations so it would be correct in comparison to the Swedish one and the used material was also sent to the different actors for their approval. The arrangement of the questions was done differently depending on which actor we had the interview with. The questions was formulated by us and not derived from previous studies. This is because there are no earlier studies done about this topic and the questions had to fit the different actors. Therefore we designed questions for the interviews by relating them to the theories we used and that were appropriate for the study.
For the Swedish Trade Council questions were asked about what they do and how they help companies in Nigeria. Questions 1-2, which can be found in the appendix, were asked so we could know more about the Swedish Trade Council. It was necessary to ask questions 3-9 so we could get a picture of how Swedish companies are operating in Nigeria and what kind of problems and similarities they faces. This can also be connected to the theory about emerging markets where the author is talking about why companies should enter emerging markets.
Questions 10-11 were asked to see if there are any differences in where in Nigeria companies establish themselves. Questions 12-21 highlight the legal, political and cultural aspects that can affect Swedish companies when establishing in Nigeria. Questions 22-27 are connected to the theories about knowledge and networking and therefore relevant in order to make an analysis later in the essay.
For the company, HQS AB, questions were asked in a similar way but focused more on how they did in Nigeria and on their knowledge and connections. There were few questions asked but Ekman talked more around the questions and brought up more than we had asked him about and therefore we had enough material collected for the empirical framework. Question 1 was to know more about the company. Questions 2-5 concerned the market in Nigeria and why HQS
17 AB is established there. Questions 6-9 were connected to the theories about knowledge and network building. Questions 10-11 were asked to find out what kind of challenges HQS AB had faced in Nigeria and if the company had been talking to other Swedish companies in Nigeria to learn about the market in the country.
The Nigerian Embassy got more questions than HQS AB. This was because we needed more information about the Nigerians view of Swedish companies in their country and how things look from their perspective. Question 1 was asked so that we could get a better picture of what the Ambassador is doing. Questions 2-3 were about business and cultural aspects that could answer the theories about emerging markets. Questions 4-6 concerned knowledge and information that Swedish companies need to have when going to Nigeria. Questions 7-10 were designed to find out how Nigerians perceive Swedish companies and how they advise them to do business in Nigeria. Questions 11-14 gave answers concerning the theories about the network building and collaborations companies need to do when entering an emerging market. Questions 15 and 16 were asked to get information about why companies may not want to enter Nigeria and who they can go to when wanting information necessary before deciding if they want to go to Nigeria.
HQS AB are playing the main role in the empirical findings and the Swedish Trade Council and the Nigerian embassy are also giving their perspective on the internationalization process from Sweden to Nigeria. The empirical findings together with the theory chapter was used when doing the analysis to see if the primary data that was collected confirmed the theories used in the literature review.
18
4. Empirical findings
In this chapter we will describe HQS AB’s journey to Nigeria and at the same time include the Swedish Trade Council in Nigeria and the Nigerian Embassy’s experience and perspective on market entry into Nigeria.
HQS AB, Heavy Quality Solutions AB, was founded by Bo Ekman in Uppsala and is today a company that is on its way to expanding its business from Nigerian into more African countries such as Mozambique, Ghana, Kenya and Ethiopia. We are going to tell you the story of how HQS AB managed to enter the Nigerian business market and what role knowledge and networking played in this process. The reader will also get to know the Swedish Trade Council in Nigeria and the Nigerian Embassy because they are important actors in the trade between Sweden and Nigeria. The Swedish Trade Council and the Nigerian Embassy represent the interest from Sweden and respectively Nigeria therefore they will give more dynamic perspective on what role knowledge and networking plays for a Swedish firm that wants to enter the Nigerian market.
4.1 The first meeting with the Nigerian Ambassador
HQS AB’s process to enter the Nigerian market did not start with a well-planned business arrangement or a great deal of time spent on a business research on the Nigerian market, instead it all started by a coincidence. Bo Ekman went to a Christian Conference in Stockholm and since Ekman is a sociable man he talked and introduced himself to almost everyone at the conference.
One of the guests on the conference that Ekman introduced himself to was a very humble and kind man from Nigeria. After the two of them had talked to each other for a while Ekman understood that the humble and kind man was then the Ambassador of Nigeria in Stockholm, Dr.
Igali. The Ambassador asked Ekman what he does for a living and when Ekman had explained that he develops diesel generators for power supply for a better environment, Dr Igali said ”let us do business together”. Ekman took the chance and the ambassador Dr. Igali turned out to be a man that would help Ekman to get in touch with key actors in the Nigerian market. Without the Ambassador Dr. Igali, Ekman argues that he would never have been able to succeed in doing business in Nigeria.
19 The Nigerian Embassy in Stockholm is happy to help Swedish companies to get in touch with trustworthy partners in Nigeria, which was shown by the former Ambassador Dr. Igali that helped Ekman personally. However, there are many businessmen from Sweden that enter Nigeria without help from the Nigerian Embassy. An indication of this is that the Nigerian Embassy gets 20 visa applications everyday from people in Sweden that want to go to Nigeria. In order to get a Visa it is mandatory that a Nigerian sends you a letter of invitation, so somehow the Swedes manage to get in touch with Nigerians, Dr Igali’s successor, Benedict Onochie Amobi said. Amobi claimed that it is very advantageous to start a business in Nigeria because the Nigerian government has created incentives that would make foreign companies wanting to come and establish their companies in Nigeria. One of these incentives is that foreign companies do not have to pay any taxes for the first five years in Nigeria. Therefore the Nigerian Ambassador argued that in terms of business environment, Nigeria is a favorable country to invest and start a company in. Amobi argued that once a company has got in touch with a partner it is very important to visit Nigeria a couple of times so that the company knows what the market is like.
From Amobi’s perspective, a foreign company will fail and not succeed with their business if they are not familiar with Nigeria and its culture. “It is when you are in Nigeria that you really understand the opportunities and it is much easier to get in touch with partners when you are there because Nigerians are not very keen on relying on people that they only have had contact with on internet” (Amobi, 2012). It is very easy to start a company in Nigeria as a foreigner, it can be done in two days and the foreign company can own their company in Nigeria to 100 %.
“There is one agency in Nigeria that is fully dedicated to helping foreign companies to establishing their companies in the country”(Amobi, 2012). Moreover, Amobi argued that the Nigerian government is not happy about foreign companies that only intend to export goods to Nigeria, Amobi referred to this as dumping. The Nigerian government is more interested in foreign companies that want more of a partnership and an intention of setting up industries that really add value to Nigeria. Amobi claimed that the reason that Swedish companies are rare in Nigeria is that they are in their comfort zone and do not dare to enter a new market like Nigeria to create business networks. Their comfort zone is their traditional trade with Germany, America
20 and the Scandinavian countries. Therefore Amobi claimed that the “most important thing to have is courage since so many foreign companies do not dare to enter Nigeria because they are scared of going out from their comfort zone”.
4.2 A word of advice
When Ekman had decided to start the process to enter the Nigerian market he got in touch with the Swedish Trade Council in Nigeria. The Swedish Trade Council in Nigeria offers a lot of services for Swedish firms that wants to enter the country. In general terms, the Swedish Trade Council is often contacted by companies that need more information about the Nigerian market.
The Swedish Trade Council gives Swedish companies that have interest in Nigeria an analysis on the entire West Africa in order to find the country that is best for the company. Nowadays it is common that companies contact the Swedish Trade Council in Nigeria because they have heard that Nigeria is a growing market. The Swedish Trade Council’s main role is to try to direct Swedish companies to make the right decisions in their establishment in Nigeria. The Swedish Trade Council is offering the companies to start their office in their own facilities in Lagos if they do not want to start something on their own in the beginning.
Nina Rehnquist argued in general terms, not only in the case of HQS AB, that there are a huge risk with going into a country like Nigeria but on the other hand when a Swedish company has managed to enter Nigeria successfully, they have opportunity to get strong gross margin. The Swedish Trade Council experience is that the most difficult part is to find a distribution way into Nigeria and to really start the business. When HQS AB in 2009 started to enter the Nigerian market the interest from other Swedish companies was weak but today Nina Rehnquist, the office Manager of the Swedish Trade Council in Nigeria, argued that there are plenty of Swedish companies that are on their way to enter the Nigerian market. The Swedish Trade Council in Nigeria helped Bo Ekman with information and with a market analysis on Nigeria. Nina Rehnquist claimed that some Swedish firms that had been informed and given a market analysis did not dare to go into Nigeria because of corruption and the lack of insufficient power supply and chose instead to enter Ghanaian market. In general terms “in Nigeria it does not matter what kind of product a company has, the most important thing is who you know and what kind of
21 network you have in the country”. In order to get involved in bigger projects as Swedish company you must have connections to the governors or the ministers” (Rehnquist, 2012).
Ekman was convinced that he would succeed in going into to Nigeria with help from the Nigerian Ambassador and the lack of sufficient power supply may also even have triggered him even more.
4.3 The cultural clash in Nigeria
When Ekman first entered Nigeria, he found that everything from culture to how people were talking to each other was completely the opposite from what it is like in Sweden. Ekman argued that he made many mistakes in the beginning when he entered the country because he did not understand the Nigerian culture. Rehnquist argued that there are a lot of different cultures in Nigeria, therefore as a Swedish businessman you have to take this into consideration. If a company only hires from one tribe, it can create problems for them such as being accused of discrimination. Another cultural challenge is that Nigerians in general are very intense and loud which from a Swedish perspective easily could be interpreted as being aggressive and hostile even if that is not the Nigerians purpose. Furthermore, there is no social security net for the Nigerians, which means that everybody has to take care of himself first of all; therefore the mentality in Nigeria is very individualistic. Many employees in Nigeria are first of all loyal to their families and can therefore quite their job very quickly if they are offered a little bit higher wages at another company. The Nigerian people are very business minded and it is very common for Nigerians to have a side business or a study project that they do when they are not doing their regular jobs. However from Nina Rehnquist experiences, business between Nigerian and Swedish actors is that normally a mutual trust can easily be created.
The Nigerian Ambassador, Amobi (2012) argued that one of the biggest challenges for Swedish companies that want to enter Nigeria is that Nigeria consists of 250 different tribes and 250 different languages, which may make it difficult to understand the culture and build networks with different tribes. This results in the tribes having their own way of doing business and business manners.
22 Ekman reasoned himself that he did the same mistake as many others had done;” to enter Nigeria with attitude that we do things in Nigeria as we do in our home country” (Ekman, 2012).
Ekman argued that from his experiences, that doing business in Nigeria is very complicated and is a tough process. Many things did not go the way Ekman wanted them to in the beginning of his process and other foreigners he met in Nigeria admired him for having such a great deal of patience. Ekman felt that one thing that helped him very much in Nigeria was his patience. That is important in order to handle all the differences in culture and political system. Today Ekman would not recommend anybody to enter Nigeria without any contacts or networks there. Ekman advice to Swedish firms’ is to create contacts with the Nigerian Embassy in Sweden, the Swedish Embassy in Nigeria or the Swedish Trade Council in Nigeria in order to get the right and trustworthy contacts.
Ekman got more help from the Swedish Trade Council, which was easier and more important and could do more to him now when he was located in Nigeria. Ekman was now connected to other Swedish companies and people that were already located in Nigeria, which could help him with their experience from Nigeria. “If a Swedish company is going in to Nigeria on its own without knowledge about the Nigerian market, it can get into a lot of problems”, (Rehnquist, 2012). For instance the tax laws in Nigeria are very complex which a Swedish company easily can get problems with. It is all about having the right advisers and network. It is a lot of corruption in Nigeria and people are talking about it without any kind of embarrassment.
Rehnquist stated that; “People are talking about brown envelopes like something normal in everyday life. There is one example about a Swedish company that went to the tax office to pay taxes and the employees from the tax office said that “if you pay me money, you do not have to pay taxes” (Rehnquist, 2012). The governmental departments do not communicate to one another enough. If one governmental department sets up a rule to allow machinery imports to the country the customs can still stop you when you want to import the machinery. The biggest downside risk of entering Nigeria for Swedish firms is that the Swedish firm is connected to a Nigerian business partner that is not serious. “Therefore it is important to find a business partner in Nigeria that the Swedish company really can trust” (Rehnquist, 2012).
23 This was the kind of information Ekman was given by the Swedish Trade Council and it made him very suspicious and focused when he went to business meetings in Nigeria. Ekman argued,
“It is very easy to be tricked in Nigeria and you cannot really trust anyone” (Ekman, 2012).
Ekman was nearly tricked many times but that this was something that happened very often in Nigeria that people from the western world get tricked. Ekman also learned by mistake to never pay someone before they finished the job that you want them to do. From Ekman’s point of view it is important to pay people after they have completed the job to ensure that the job will be done otherwise you will not see the money or the company again. Ekman avoided to be tricked with the help of his network that gave him opportunities to collaborate with trustworthy people.
Ekman remembered one time that a man wanted Ekman to pay him 2.000.000 naira to give him the opportunity to meet the President of Nigeria to introduce his energy system. Ekman felt the offer was not aligned with his own values and since he already had met President Goodluck Jonathan four times the proposal sounded stupid. So Ekman called the man again and asked him why he should pay him money to meet the President before when he had done it for free many times before. The man said “Okay I will help you for free” but the man never called Ekman back again.
4.4 Networking and the start of HQS AB’s business in Nigeria
“It is important to know exactly what you are doing when you as a company enter Nigeria the first time and maybe the most important thing is to get in touch with the right people”(Amobi, 2012)
Ekman travelled to Nigeria many times in order to take part in important seminars which he had been invited to through Dr. Igali and the Swedish Ambassador in Nigeria on electricity and power supply and therefore got to meet and know many ministers, commissioners and the President of Nigeria Dr. Goodluck Jonathan. This strengthened Ekman’s network and the Swedish Ambassador was surprised that Ekman eventually had a bigger network in Nigeria than himself.
24 Ekman argued that the conditions in Nigeria were very different from those in Sweden when it comes to power supply. In Nigeria facilities are very dangerous since a generator produces electricity almost like a small nuclear power plant. In Nigeria the lack of sufficient electricity leads to an airplane not being able to land because the airport did not have electricity or that people died in the hospitals because the electricity was turned off. That is why Ekman was very devoted to starting his project with “Reliable energy today for your safety tomorrow” as Ekman often called his services. When Ekman introduced this program to ministers and the President, he was trying to emphasize the fact that his solution was for the next generation of electricity and that they have to think what is best for Nigeria in the long run. Today Nigeria has a very old- fashioned English electricity system mixed with new Chinese equipment that is not very good in the long run. Ekman’s products were better Ekman explained because they have much better qualities and would last for 30 years.
From Ekman’s point of view he felt that he was lucky that he had the Nigerian government as the potential buyer of his services since he felt that it was easier to collaborate with the Nigerian government than with the private sector which he had heard was unreliable, especially if you did not have the right network. Dealing with the government was not an easy task either since every state in Nigeria had its own men in charge of the power supply; Ekman had to get in touch with each of Nigeria’s 36 state governors. On the other hand, Ekman had managed to build a strong network with key actors in the Nigerian government, which he argued made his situation much easier. Ekman remembered one big Swedish company that went to Abuja but could not deal with the commissioners and the ministers and the networking in general. The company had therefore backed off from their business plan and instead got help from Siemens that they worked under which eventually lead to making much less profits than they would have made if they had known how to handle the commissioners and the ministers. “The networking and market entry is a process that takes time” (Ekman, 2012).
Ekman felt that the biggest challenge for him in Nigeria was how to handle bribery, to trust people and to make people to trust him and his motives. Ekman made a thumb of rule to only pay someone that had actually accomplished something. This made it easier for Ekman to handle his business and network in Nigeria. Ekman realized that people in Nigeria were suspicious about
25 him because he was a foreigner. He also discovered that many Nigerians had been fooled by companies from the western world and therefore did not trust people from the west that much.
“It was one foreign company that had received a lot of money to set up and build roads in Nigeria but they disappeared with the money and did not complete their work” (Ekman, 2012).
“Companies should also be aware of that corruption and bribery which is not only happening in Nigeria but also in Sweden” (Ekman, 2012). Therefore Ekman tried to be humble and to always emphasize that he wanted to involve, hire and educate Nigerians in his business and that he would stay in the country for a long period of time when he was describing his business idea for important actors. Ekman felt that this was crucial for his success in doing business in Nigeria that he always tried to have an interactive approach to the people he did business with so that he could add value instead of taking value from the Nigerian society.
After Ekman had been in Nigeria for two years and had managed to create a strong network it was now time to start the business. He felt that everything was well planned from the start of his business but he nearly lost all his work just for one tiny mistake. Ekman was about to write his business proposal to the contract for all the universities in Nigeria. He gave it to a man in charge who said directly that this is not good enough we cannot work with you. Ekman felt that he had been fooled and talked to the Ambassador at that time Dr. Igali. Dr. Igali read through the paper and understood directly that Ekman had made errors in his way of writing a business proposal. It was a matter of bad format in general terms and not good enough formal writing. After a word of advice from a contact in Ekman’s network, Ekman now changed the format of his paper and the paper was now accepted. Now Ekman just had to wait for the ministers to sign his papers. This was one of the most straightforward examples of Ekman about how business can go wrong if you don’t respect the Nigerian way of doing business.
Ekman had before he entered Nigerian gone through a lot of information about the country and how to do business but after his journey he felt that the explicit knowledge only played a minor role in his establishment in Nigeria. The knowledge Ekman valued the most during his early times in Nigeria was the knowledge he had managed to attain through his network in Nigeria. It would not have been possible to do the business that he succeeded in without this knowledge
26 Ekman argued. After Ekman had signed the paper, he did not hear anything from the institution but due to his contacts the governor of the River Delta contacted him and told him that he needed his services. After this Ekman came back to Nigeria with a delegation of an engineer, a building manager, business manager and himself in order to start the construction. HQS AB is now about to set up their system in the whole River Delta. Ekman’s ambition is to train and educate the people in the River Delta so that they can be involved in the project for a long time in the future.
Today HQS AB is about to sign contracts with hospitals, airports and construction companies in Nigeria. HQS AB is also about to set up offices in Lagos and to educate Nigerians in knowledge that HQS AB has in power supply. With the help of Ekman’s network in Nigeria, HQS AB also has a business plan to start the same business in Mozambique, Kenya and Ethiopia.
Furthermore, today Ekman works as a consultant for some of the biggest Swedish companies in the electric branch that are on their way to enter Nigeria.
4.5 Lessons learned for HQS AB and Ekman
Ekman argued himself that the most important thing for him when he started his process for going into Nigeria to set up a business there was his network. The contacts that Ekman values the most are Dr.Igali, the Swedish Ambassador in Nigeria and the Swedish Trade Council in Nigeria. These contacts made him find more reliable contacts, which made him to get to the ministers, governors and commissioners. “The Swedish ambassador in Nigeria claimed that I had more contacts in Nigeria than he had himself” (Ekman, 2012). Through Ekman’s contact’s he managed to avoid being scammed and he got a lot of information, which made his business possible. However, Ekman made some mistakes and was put in difficult position but learned from his mistakes, which gave him knowledge about how to handle different situations. From Ekman’s point of view the knowledge that are explicit and can be found on the internet are good for preparation, but when it comes to business it is only your network that matters.
He argues that his experience from Nigeria has helped him in his ambitions to go into other African countries such as Kenya and Mozambique. However, Ekman argued that Nigeria is a difficult market. “I have been in Nigeria for 3 years and still we do not have any established office in Nigeria. I heard that it took 10 years for a Canadian company to get established in
27 Nigeria. This is also the case why many companies choose to establish their companies in other countries in Africa, since it goes faster in the establishment process.” (Ekman, 2012).
Ekman thought that it is very important to create a mutual trust when you go into Nigeria and to listen to the people. He has met people who failed and lost millions of dollars, which he argues, was because they could not collaborate with the commissioners and the ministers because they came in with a European mindset. Ekman also argued that it is not only Nigerians that trick foreign companies; it is also common with some foreign companies that take money and leave the country. This, Ekman argues, has made Nigerians very suspicious of foreigners in the country. Therefore it is important to develop a mutual relationship with people that you are going to do business with and to state that you are going to stay in the country for a long time and that you are willing to involve many Nigerians in the executions of your project. The most important thing to be in Nigeria is to be patient, which Ekman says that he displayed a lot mainly because he believed that what he would give the people in Nigeria would save lives and make Nigeria a better place to live in.
28
5. Analysis
In this chapter an analysis is done with the empirical findings and the theories used in the essay to see if there are any connections with the literature on knowledge and networking in
internationalization process.
5.1 HQS AB and the Uppsala Internationalization process model
According to Johanson and Vahlnes’ (2009) Uppsala internationalization process model, an increased level of knowledge about opportunities in a new market is going to affect the level of commitment to the new foreign market. For HQS AB this increased level of knowledge about opportunities started with the meeting between Ekman and Dr. Igali. This meeting gave Ekman the knowledge that Nigeria was in need of his services and Ekman saw an opportunity to enter Nigeria with the help of Dr. Igali. HQS AB’s commitment to Nigeria changed and Ekman started to travel to Nigeria in order to strengthen his relations to Nigeria. Ekman also learned a lot from his journeys to Nigeria about the ways of doing business in the country. Ekman always empathized that he would be in Nigeria for a long time and that he would involve the natives in his business in Nigeria. He also created trust by listening to the native people and their needs and adjust his business after that. Therefore one may argue that Ekman managed to create a strong body of knowledge, commitment and trust in his business relationships, which according to Johanson and Vahlne’s (2009) Uppsala model lead to a fast creation of more knowledge,
29 learning and trust building. Ekman’s contacts journeys eventually lead him to create trust among Nigerian commissioners and ministers. In the Uppsala model an increased level of learning, creating and trust-building will affect a firm's network position. This was manifested in HQS AB’s by Ekman who eventually had a bigger network in Nigeria than the Swedish Ambassador had in Nigeria. This shows that HQS AB had managed to find themselves in a new network position and hence had become an insider.
5.2 What role does knowledge play for a Swedish firm that enters Nigeria?
5.2.1 Explicit Knowledge
Knowledge could be either a tacit or an explicit character according to Polyani (1967) and Nonaka (1991). Explicit knowledge can be found in written forms that are official and this knowledge is something that everyone has access to, it could for instance be governmental publications (Nonaka, 1991). The Swedish Trade Council tries to provide explicit knowledge to Swedish companies that want to enter Nigeria. This kind of knowledge is normally provided by the Swedish Trade Council with a market analysis on Nigeria that later is given to the companies that wants enter Nigeria in order to facilitate the internationalization process. Accordingly, Swedish Trade Council was one of the sources for the explicit knowledge to HQS AB.
Ekman reasoned that the explicit knowledge he got from studying books and browsing the Internet was good for the preparation but was of little help when he was in Nigeria. Even though Ekman had studied Nigeria very well before he entered the country he still found it very difficult to operate in it. From the Nigerian Ambassadors Amobi’s point of view knowledge is very important whenever you start doing business abroad but not something that is unique to Nigeria.
Amobi argued that foreign companies often go to Nigeria with little knowledge about the country and that is one reason why companies do not manage to create something sustainable in Nigeria.
According to Eriksson et al (1997) if a firm lacks explicit knowledge it means that the firm does not have sufficient knowledge about laws, rules and language in the foreign market. Moreover, lack of explicit knowledge about the institutions in the foreign market will have an effect on the estimated cost of entering a new market. Rehnquist supported this and argued that it is very risky
