Going International With Local Product

Nigerian Cocoa

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).

Industry Analysis

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.

PESTEL

Political. Federal and individual state governments are currently supporting programs to increase the supply of cocoa seeds to farmers in the region. There are now State Cocoa Development Units in the various regions work to increase farmer efficiency. Additionally, there has been the liberalization of cocoa production in Nigeria. Before the 1980s, "Nigerian cocoa beans were exported exclusively by Nigerian Cocoa Board (NCB)," (Ajetomobi 2011 p 2). However, today, the production of cocoa is much more liberalized, being exported by a number of agencies and sellers, and with great dependence of prices on the international economy. Today, the Nigerian government provides a wider variety of cocoa seeds to local farmers around the country in order to improve harvest stocks and potential.

Economic. The international economy had had an enormous impact on the price of cocoa both locally within Nigeria, and abroad in England. Unreliable prices cause local farmers to want to invest in other more reliable crops for selling. Here, the research suggests that "Grower prices are determined by movements in the international prices for cocoa and fluctuations in the exchange rate of the naira," (Nicely, David & Nzeka 2011 p 4). Moreover, the economic structure of the UK has placed some barriers against importing goods. Many nations within the United Kingdom were hit hard by the global economic crisis. This has left the GDP to suffer over the past few years. However, reports show that the GDP is once again beginning to show signs of life (Trading Economics 2011). In fact in the second quarter of 2011, it had grown by 0.10%, showing signs of health within the UK economy, which will hopefully reinstall greater consumer buying power.

Social. A number of global social trends have also impacted the possibility for Nigerian cocoa to succeed in international markets. First, the recent civil unrest in the Ivory Coast, another major producer of cocoa in Africa, has limited its potential to produce large volumes of cocoa. Nigeria now has a greater chance than ever to take advantage of Ivory Coast's weakened position. Additionally, in Europe, social trends are increasing the popularity of organic products. More of the middle class is turning towards more sustainable and organic products, at a higher premium cost. This opens up greater opportunities for Nigerian cocoa in areas like the UK.

Technology. New varieties of cocoa plants being genetically engineered to be less disease prone and to be ready to harvest within a shorter span. The maturity span of these new genetically modified plants are at three years compared to five. Moreover, new chocolate factories being built in 2012 to help increase local consumption and the exportation of cocoa products rather then the raw material alone. This provides new job opportunities within the cocoa supply chain. The Export Expansion Grant (EEG) is aiming to encourage further production of cocoa on a more local level before it leaves the country.