Nigeria offers very huge opportunities for most goods and services as the largest market in Africa. With over 173 million inhabitants, every member or class of this demography generates demand to meet and sometimes exceed all volumes of supply. The presence of all but one of Forbes current top 10 brands in Nigeria is an indication that every player is getting their fair share.
But for the Nigerian Entrepreneur, the dilemma remains whether to grow big or stay profitable. The business and political environment is very volatile and the cost of doing business is quite high, no thanks to the epileptic power supply and the new concern of dearth of world-class manpower which means firms with global appeal might resort to expatriates and importation of Nigerians from diaspora to compete.
A lot of Nigerian home grown brands especially in the Banking sector have become continental and international players but quite a number of them have been swept away by an over-ambitious drive for expansion beyond means and reality. Unlike, most countries where there seem to be some seemingly even distribution of wealth, Nigeria’s case is far from normal. The concentration of wealth in a few hands and the dominance of a few cities as the commercial nerve centres of the country means that most businesses with an intent to grow must focus on these hubs. Most businesses in their bid to expand within the Nigerian geopolitical space have had their fingers burnt by cost that are not commensurate with returns, creating cost centres as against the original intention of increasing profit.
It is very common to find Nigerian consumers who can make purchases from different outlets of the same brand but whose volume of consumption remain unchanged. The dependency ratio in Nigeria is so high that sometimes over 80% market share of a business in a particular location is actually generated remotely from another location. For instance, the same bank can have the same customer with multiple accounts across its different branches in different cities. Same goes for monthly bills payments made by family bread-winners from the cities for the benefits of their dependents in their home states.
The Nigerian entrepreneur must be guided by in-depth feasibility studies and due diligence before embarking on any form of expansion. Sometimes staying small can guarantee profitability while expansion can duplicate cost without necessarily increasing profit, more often than not, it erodes it. The outrageous bad loan portfolios of Nigerian Banks are a clear indication of the brunt of failed expansion plans. We can point to a few areas that require tedious analyses
Lagos, Abuja, Port Harcourt and Ibadan
Lagos alone is about 40% of Nigeria’s market for all goods and services and the only city with an active middle-class. Abuja, Port Harcourt and Ibadan add another 30% leaving the rest of the country to share the remaining 30%. A business with a cost-effective operation in these cities can stay profitable. The location of business outlets within these cities should also be guided by an intent to maximize returns from strategic positioning
Other Notable Cities
On the map the following cities are highlighted but must be approached with proper feasibility studies. Warri, Benin, Enugu, Owerri, Kano, Kaduna, Calabar, Uyo, Onitsha, Asaba and Aba. These cities are practically the rest of the Nigerian market and must be considered with a well laid out growth plan. There are huge chances of success in these markets with a conservative investment size
Cost of Power Generation
To neglect the cost implication of power generation in day to day business operation is the highest form of unpreparedness. The epileptic power supply despite the recent improvements remains a huge concern for all businesses within Nigeria. It is imperative that a business must factor in this cost in all its price dynamics and recurrent expenditure
Because good manpower is very limited in Nigeria, businesses must be very wary of expansion beyond competencies. Businesses must have a good Human Resource Management system to retain their best hands or lose them not just to competition in the same markets but even across industries. Manpower is also becoming very expensive in Nigeria with the global mobility of labour. Nigeria has been known to suffer tremendous human capital flight losing its best brains to foreign businesses whose work environments are more appealing than local operators. With the right people, a business can achieve its expansion plan otherwise keeping it small might be the best option
Investment Tenor and Operating Environment
While short-term plans might be too short to maximize returns on investment in Nigeria, a long term plan might equally be dangerous. In keeping it small and profitable the risk elements are easier to manage. However, going big and building capacities must have the right guarantees and insurance in place. The political environment is a constant threat to businesses operating in Nigeria. The likelihood of political interferences in market forces including exchange rate is a high risk and must be treated as such. Decisions like buying properties or leasing must be taken with adequate insights and mitigations. A business operating without taking out the right insurance policies might be biting more than they can chew. The Legal environment should also be deeply understood
The Nigerian retail segment is well developed and deeply entrenched to achieve the expansion plan of most businesses. It is important to identify the right retail partners and share operating risk. The right Dealership or Franchise Agreements must be executed within the confines of the law and businesses can achieve mutually beneficial relationships. Retail Stores like Mall of Africa, Jumia, Konga, Yudala are providing offline and online solutions to distribution of goods and services across Nigeria
The internet offers most of the solutions to expansion with minimal risk and reduced cost. The internet penetration in Nigeria is very high and businesses must leverage this solution to achieve their expansion plan without the associated risk of physical deployment of human and material resources. This will greatly reduce the impact of unforeseen changes in the operating environment.
The ultimate goal of every business is to grow in size and profitability. Sometimes, one comes at the expense of the other. Because Nigeria is a peculiar environment, Entrepreneurs must figure out the solution that strikes the right balance that guarantees the brand survival and preservation.
Written by Eze Igwe