The Risks and Payoffs of Entering into the British Marketplace
As organic and high quality products are becoming more and more desired, it is clear that exporting Nigerian cocoa to international markets, like the UK will prove a successful endeavor. There has been a large production of cocoa in Nigeria since 1910 (Oyedele 2011). It has a long and steady history of quality cocoa production and Nigeria is now the world's 5th largest producer of cocoa in the world. It is now also increasing its production of organic cocoa and local manufacturing of cocoa products, rather than solely raw cocoa beans as the major export. This makes it an appropriate move to introduce Nigerian cocoa into a UK marketplace. England has recently been increasing its desire for organic products and is often willing to pay more for higher quality. Additionally, England, along with much of the rest of Europe, is moving much of its production overseas, thus making the already available process of manufacturing cocoa locally in Nigeria a major plus. With the research forecasting 300,000 MT for the 2011-2012-year, it will be crucial to make the introduction into the UK market soon (Nicely, David & Nzeka 2011).
Threat of New Entrants. The cocoa market has recently "increased international competition," (Jansson 2005 p 3). Other Latin American countries trying to emulate the Dominican Republic are well on their way of increasing cocoa production. Latin American nations are opt to step into produce large volumes of organic cocoa, threatening Nigeria's market share. In the UK, there are also strict requirements to be able to sell foods labeled organic. Producers of cocoa looking to gain the right to label their products organic will have to meet a long list of demands forcing such producers to utilize sustainable practices and limited use of chemicals within the grow period (Barrett 2002). This may prove difficult to do for many smaller cocoa producers who do not have the strong support from government many Nigerian farmers to in terms of building sustainability productive practices.
Threat of Substitutes. Unfortunately, Nigerian cocoa is still suffering in terms of quality. In fact, although Nigerian cocoa has increased in quality recently, it is still well under the quality it was in the 1980s (Nicely, David & Nzeka 2011). This creates a situation where Nigerian cocoa can easily be replaced with substitutes from the Dominican Republic or Ivory Coast. Moreover, organic cocoa being introduced into the UK market may be easily replaced with substitutes from other organic producers, who meet the requirements of organic certification, without sacrificing quality.
Bargaining Power of Suppliers. There are many UK suppliers are looking to move production of cocoa over seas to save costs. This would mean that Nigerian suppliers, fitted with brand new processing facilities, would be able to have a stronger presence within the negotiation process involving English buyers. However, high UK tariffs can tend to have an impact on doing business in England.
Bargaining Power of Buyers. The power of buyers is increasing because of the more liberalized process of exporting cocoa out of Nigeria (Ajetomobi 2011). Where at one time English buyers would have had to deal with a single government agency and much more rigid prices, the more liberalized process now allows those buyer to go to a number of different suppliers looking for the best deal.
Competitive Rivalry within the Industry. International competition in the cocoa producing industry is high. According to the research, "The rapid growth of emerging country markets and their integration into the world economy is drastically re-arranging the competitive forces for firms and economies," (Jansson 2005 p 1). As more and more countries become open to working within the international community, the potential increase for competitive rivals increases. Yet, there has been some leeway made for Nigeria. First, Ivory Coast is experiencing social dilemmas which has its production capacities at risk. Secondly, Latin American cocoa is widely available, but may not be as practical for English buyers than Nigerian cocoa. Yes, the Dominican Republic is the largest producer of organic cocoa (Koekoek 2003). However, its proximity to the United States could be a major threat if the product was taken to the United States. Thus, it would be more productive to keep Nigerian cocoa closer than across the Atlantic, in regions like the UK.