ENTREPRENEURSHIP STUDIES

GST 203 LECTURE 4

NIGERIAN BUSINESS ENVIRONMENT
Business operates in an environment. As a social institution, business has an intricate and important
relationship with the environment with which it interacts (Hellman et al, 1999). For the business,
the main purpose of such interactions is to maximize profit and well-being of a firms constituents.
The mechanism of interaction is the interface between the business and its environment; the
business and environment gain from each other. This typifies interdependence between business and
environment.
The dynamic environment in which a business operates provides opportunities for it to grow,
develop, create value and wealth. It also poses some threats to the business.
The primary concern is how the business affects people and natural environment as it produces and
sells products necessary to satisfy customers, stakeholders and other constituents. By building key
stakeholder relationships among government agencies, consumer entities, environmental groups and
other constituents, a business can anticipate and manage issues and concerns that might otherwise
have gone undetected until they had grown into major problems (Rainey, 2008). These entail
conscientious analysis of both external and internal environment by the business.
Businesses are faced with challenges of social considerations which focus on specific issues that
relate to their activities and transactions with employees, customers, shareholders, suppliers, etc.
Further, social considerations include protecting the health and safety of the general population,
avoiding harm to the natural environment, developing and deploying ethical standards and
practices, meeting cultural and social norms, balancing interest of the business with the interests of
the society, and being a proactive entity (Rainey, 2008).
Political considerations are also of significant relevance as they have direct impact on the
functioning and success of the business. Political and regulatory changes are usually manifestations
of the social and economic conditions and issues. Equally of primary concern to the businesses,
their customers and stakeholders are economic considerations which often focus on the direct
effects of the exchange of goods and services, the flow of money and the relationships between the
participants. Customers are either satisfied, dissatisfied or have a neutral opinion. Economic
considerations also cover indirect implications of economic activities such as hidden costs of
transactions and the externalities borne by the society. In this regard, the most crucial economic
questions often pertain to environmental-related impacts. Usually, they are some of the multifaceted
negative and unintended outcomes of products, processes and operations.
The foregoing implies that the environment of a business is the pattern of all the external and
internal conditions and influences that affect its life, growth and development. Consequently, since
growth and development through conspicuous industry and market positions are central to mission
statement and vision of a thriving business, it is onerous on the corporate strategist to keep abreast
with the factors of the business environment and the evolving trends of their features over time. In
nature, the environmental factors and their influences are economic, political-legal, socio-cultural
and technological.
Business Environment
The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

Business is a social activity, aimed at creation of goods of services within the framework of a
society or community. Activity that is legitimate in one society, city or state may be illegal in
another. For instance, the sale of alcoholic drinks is illegal in some towns in some states in the
North, so also is the consumption of pork.
This implies that the type of business activity that takes place in a particular community, state or
Nation is largely determined by beliefs, needs and attitudes of that particular community. As
business makes demand on the society and society makes demand on the business, the
interrelationship between the business and the community it operates in, amounts to business
environment.
The environment of a business entails all the external and internal conditions and influences
that affect the life, growth and development of a business.
The business environment varies from one country or state to another. Some may be favourable to
business growth while others (business environments) may be hostile.
The Macro elements of Business environments are:
- Economic environment
- The social environment\the legal/political environment
- The technological environment
- The cultural/ethical environment
- The international business environment
Micro Elements:
- Competition
- Trade Union/Pressure Groups
- Investors
- Customers/Consumers
- Suppliers
- The General Public
- Government Regulatory Agencies and NGOs
External and Internal Environment Variables
External (Micro task)
Economic
External (micro task)

Social
Cultural

Competition

Personnel

Trade
Unions/
Pressure
Groups

Technology

Ethical

The
Public

Internal
Product

Finance

Govt.
Agencies

Marketing

Legal/
Political

Suppliers

International

The diagram above illustrates the business environment pointing out the external components
(macro and micro elements) and the internal components.
The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

Take note that the external environment is uncontrollable while the internal environment elements
are controllable.
Economic Environment
Every business enterprise, whether profit oriented or nonprofit oriented is affected by the economic
environment in the following perspective;
Capital: Virtually every organization need capital, machinery, buildings, office equipments, tools
and cash. While some organizations may produce the needed capital by itself, other may need to
generate cash to purchase the capital items. This implies that all businesses are dependent on the
availability and price of these items. While some societies are endowed with natural resources,
others may not be as lucky. For instance, Nigeria has Oil, while Nigerian Republic has none.
Other economic variables that business managers must be interested in are: unemployment rate in
the economy, exchange rate of the local currency to the pound sterling or the Dollars, inflation and
interest rates in the economy. Gross Domestic Product GDP, this is the measure of output of goods
and services in the country during a given year.
Technological Environment
Science provides knowledge whereas technology utilizes it. The main influence of technology is on
the way things are done i.e., how we design, produce, distribute and sell the goods as well as
services.
The impact of technology is seen in new products, new machines, new tools, new materials and new
services in the market. For instance, with consumer application, banks are able to serve the many
customers efficiently with less time. Technology has brought variety of products like the
automobiles, new machines such as harvesters, etc. The benefits of technology are not without some
problems such as air and water pollution, traffic jam, energy shortages, etc.
Social Environment
The social environment is made up of attitudes, desires, expectation of educational attainment,
beliefs and customs of the people. The attitudes and values are different between workers and
employers; rich and poor; college students and alumni; the Edos and Yorubas, Hausas and Igbos.
These variations for values bear some difficulty on managers to design an environment conducive
for performance and satisfaction.
In Nigeria, the population is large, both the educated and uneducated, young and old, continue the
struggle for social class, recognition, through our tastes. For instance, the uneducated and the poor,
imitate their educated and rich counterparts in terms of cars, houses, dresses, etc. they use. A
pragmatic businessman would recognize this phenomenon and exploit it. The socialization
institutions in the Nigeria society help to fan the embers of current social trends, values, beliefs,
customs and norms. For instance, the educational institutions have fostered the influence of western
culture at the expense of Nigerian cultural values. Today, most educated women regard themselves
as equal to men. The traditional institutions have continued to fan the embers of ethnicity and
communal lifestyle. Some people today lay emphasis on ethnic origin and extended family or
collective groupings.
The Political and Legal Environment
The attitudes and actions of political and government leaders or legislators do affect the flow of
social demands. Government actions affect every enterprise. For instance, in business, government
can promote and constraint the business growth. It promotes business by:
- Stimulating economic expansion and development, e.g. building of roads;
- Providing assistance to small-sale business enterprises, e.g. NERFUND;
The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

Supporting research through research grant;

Subsidizing certain industries, e.g. agricultural fertilizer procurement;
Granting tax holidays;
Government is also large purchaser e.g. government agencies, banks.

Government can also constrain business through regulations designed to protect:

- The workers, e.g. minimum wage;
- The consumer: Sales of Good Acts;
- Communities: ecological fund; educational tax, etc;
- Regulations to control managers vis--vis the employees, e.g. trade union act, collective
bargain, and arbitrary dismissal act.
Put succinctly therefore the laws of the land affect organization in the following ways:
- How the organization does her business e.g. the law of contracts; the law of agency, the sales
of goods act, etc.
- How the organization treats its employees e.g. Trade Union Act, Employment Act; Pensions
and Retirement Benefits Act, etc
- How the organization gives information about its performance and existence e.g. the
Companies and Allied Matter Decree 1990. Criminal Law, e.g. defaults in value added tax,
capital gain tax, import and excise duties, etc.
With regard to political environment every organization operates within a political framework.
Political change therefore has the capacity of complicating the task of planning and predicting the
future. Tourism industry is most affected by erratic political changes. Managers must therefore be
aware of:
- Whether political change could have a significant impact on their organization.
- The extent of the consequence of a political change.
- What is the likelihood that a political change will take place?
- How organization can plan to cope with the effects of the change.
The Cultural/Ethical Environment
The culture of a particular community affects the type of business enterprise found there. The call
for birth control, if accepted would invariably affect the production and demand for baby items. The
cultural belief in the mode of living, (rural/urbanization) women, role at work, will definitely affect
managers plans in business.
From 1960, when Nigeria as a country, secured her political independence, industrial establishment
laid emphasis on mechanization and manpower development, which was encouraged by the
government. This large-scale operations philosophy gives little or no thought to the personal needs
of the workers, the needs of the community, the business operates in and the Nigerian society as a
whole.
Today, as a result of cultural changes, pressures are being exerted by various pressure groups like
Trade Unions, the shareholders, the press council, public and educational institutions, on business to
be mindful of the societals need.
The ethical environment is a set of generally accepted and practiced standards of personal conducts.
These standards although usually not codified as law, but sometimes have the force of law to any
group it applies. It deals with what is good and bad and with moral duty and obligation.
Many business enterprises established ethical codes which fashion the relationship of all the
constituents of the enterprise such as the employees, the customers and the management. For
The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

instance, ethics demands that a manager should not slap his subordinate in the office, no matter the
offense. Also, it is poor ethical standard for any organization to supply her customers with inferior
and poor quality and unreliable products.
International Business Environment
It is becoming more evident that the international aspect of the business environment and the need
for business managers to relate their particular operations to this broader dimension, contributes to
their business successes.
For instance, Nigeria, businessmen look beyond the shores of this country for raw materials and
component parts needed for production, and foreign markets as outlets for their goods. Therefore,
the managers of the internationally oriented enterprise will need to understand the different peoples
and their cultures, philosophies and politics.
Where the enterprises is a multinational, managers would need to have preparation for international
economic and business operations, greater consciousness of social responsibilities and more active
role in government relations, etc. For instance, most Nigerian companies are dependent or imported
raw materials, technology, machinery and equipment. Secondly, foreign investment account for the
large capital of the large corporations in Nigeria, particularly in the oil sector such as Shell, Mobil
Oil, etc. and trading firms like United African Companies (UAC), John Holt Plc, etc.
Nigeria also belongs to many international economic institutions or organizations such as Economic
Community of West African States (ECOWAS), International Monetary Fund (IMF), International
Labour Organization (ILO), General Agreements on Trade and Tariffs (GATT), etc. Policy decisions
of the above international organizations must affect the businesses macro task environmental
elements in Nigeria.
Micro Environment Elements
The Micro task environment is the acronym given to the industry outlook of a company or business.
Every business has its own industry and the variables that influence the industry that are external to
the firms operating in the industry. Examples are;
i.
Demand for the products/services: The end uses of the industrys product would affect
the future demand. For instance, if a product is used for only a particular thing, e.g. knife
for cooking (Kitchen use) the demand would be stable and mature. On the other hand, if
the product has derived demand i.e. used in association with other products, the
popularity of the other products would affect its demand.
ii.

Supply of products/services: The profitable outlook of the industry would not only
depend on the demand for its products or services but also on the supply and the cost of
bringing such products to the market. Such variables like excess capacity, labour cost,
material costs, taxes, etc. all affect the supply capacity.

iii.

Competition: This paragraph states that outlook of an industry would be affected by the
balance of the forces affecting the demand and supply of the products. However, the
competitive conditions within the industry are another strong variable that would affect
the manner and the rapidity with which these forces work themselves out. For instance,
the nature of companies in the industry e.g. some are large, with strong financial
strength, while others may be small. Some industries are well organized and joint
research is carried out. Government regulations also vary from industry to industry and
these and other variables affect the competitive nature, which thus affect the demand and
supply of the products/services.
Some Important Variables in the Environment
Economic
Technological
Political-Legal
Socio-cultural
The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

GDP trends
Interest rates
Money supply
Inflation rates
Unemployment levels
Wages/price controls
Devaluation
/revaluation
Energy alternatives
Energy availability
and cost
Disposable and
discretionary income
Currency markets
Global financial
system

Total government
spending for R & D
Total industry spending
for R & D
Focus of technological
effort
Patent protection
New products
New developments in
technology transfer from
lab to marketplace
Productivity
improvements through
automation
Interest availability
Telecommunication
infrastructure
Computer hacking
activity

Antitrust regulations
Environmental
protection laws
Global warming
legislation
Immigration laws
Tax laws
Special incentives
Foreign trade
regulations
Attitudes toward
foreign companies
Laws on hiring and
promotion
Stability of
government
Outsourcing
regulation

Lifestyle changes
Career expectations
Consumer activism
Rate of family
formulation
Growth rate of
population
Age distribution of
population
Regional shifts in
population
Life expectancies
Birthrates
Pension plans
Health care
Level of education
Living wage
Unionization

Business Organizations and its Environment-Interdependence

The business environment is an intricate and dynamic concept, which embraces independent actions
of all institutions, organizations, and individuals which have impact directly or indirectly on a
business organizations operation.
Participants within the Nigerian business environment include:
i.
Individuals, who act as consumers of goods and services, labour to organizations,
providers of capitals and entrepreneur to organizations producing the goods and services.
ii.
Business organizations, which are primary suppliers of goods and services used for
production, distribution and retailing of the goods and services. They also act as
competitors to business.
iii.
The state who act as a consumer of goods and services, employer, producer of goods and
services, regulator of the economy.
The business environment can conveniently be classified into two broad categories that is the
internal and external business environment. With regards to internal environments it would consist
of technologies used by the organization and its sub-elements, i.e. market and the marketing system,
its products and production system, its products and its services, i.e. the administrative and control
procedures, to mention but a few.
The external business comprises of sub-elements like the customs, competitors, the political and
legal system, the economic and social system, the technological and ethical system, the government
regulatory system, etc.

SWOT ANALYSIS
The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.

By definition, SWOT analysis is an analytical tool used in scanning the business environment in
order to determine the organizations
(S) Strengths and (W) Weaknesses are considered to be internal factors over which the entrepreneur
has some measure of control.
Opportunities (O) and Threats (T) are considered to be external factors over which you have
essentially no control.
Objectives of SWOT Analysis
SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of
the business and its environment. Its key purpose is to identify the:
i.
Strategies that will create a firm specific business model that will best align an
organizations resources and capabilities to the requirements of the environment in which
the firm operates. In other words, it is the foundation for evaluating the internal potential
and limitations and the probable/likely opportunities and threats from the external
environment.
ii.
It views all positive and negative factors inside and outside the firm that affect the
success.
iii.
A consistent study of the environment in which the firm operates helps in
forecasting/predicting the changing trends and also helps in including them in the
decision-making process of the organization.
Overview of the four factors (Strengths, Weaknesses, Opportunities and Threats):
Strengths: Directional Questions
What does your organisation do better than others?
What are your unique selling points?
What do you competitors and customers in your market perceive as your strengths?
What is your organisations competitive edge?
Strengths are the qualities that enable us to accomplish the organizations mission. These are the
basis on which continued success can be made and continued/sustained. Strengths can be either
tangible or intangible. These are what you are well-versed in or what you have expertise in, the
traits and qualities your employees possess (individually and as a team) and the distinct features that
give your organization its consistency. Strengths are the beneficial aspects of the organization or the
capabilities of an organization, which includes human competencies, process capabilities, financial
resources, products and services, customer goodwill and brand loyalty.
Examples of organizational strengths are huge financial resources, broad product line, no debt,
committed employees, highly skilled or qualified employees, etc.
Weaknesses: Directional Questions
What do other organisations do better than you?
What elements of your business add little or no value?
What do competitors and customers in your market perceive as your weakness?
Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full
potential. These weaknesses deteriorate influences on the organizational success and growth.
Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses
in an organization may be depreciating machinery, insufficient research and development facilities,
narrow product range, poor decision-making, etc.
Weaknesses are controllable. They must be minimized and eliminated. For instance - to overcome
obsolete machinery, new machinery can be purchased. Other examples of organizational
weaknesses are huge debts, high employee turnover, complex decision making process, narrow
product range, large wastage of raw materials, etc.
The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

Opportunities: Directional Questions

What political, economic, social-cultural, or technology (PEST) changes are taking place that could
be favourable to you?
Where are there currently gaps in the market or unfulfilled demand?
What new innovation could your organisation bring to the market?
Opportunities are presented by the environment within which our organization operates. These arise
when an organization can take benefit of conditions in its environment to plan and execute
strategies that enable it to become more profitable. Organizations can gain competitive advantage
by making use of opportunities. Organization should be careful and recognize the opportunities and
grasp them whenever they arise. Selecting the targets that will best serve the clients, while getting
desired results, is a difficult task. Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for telecommunications accompanied by
deregulation is a great opportunity for new firms to enter telecom sector and compete with existing
firms for revenue.
Threats: Directional Question
What political, economic, social-cultural, or technology (PEST) changes are taking place that could
be unfavourable to you?
What restraints to you face?
What is your competition doing that could negatively impact you?
Threats arise when conditions in external environment jeopardize the reliability and profitability of
the organizations business. They compound the vulnerability when they relate to the weaknesses.
Threats are uncontrollable. When a threat comes, the stability and survival can be at stake.
Examples of threats are - unrest among employees; ever changing technology; increasing
competition leading to excess capacity, price wars and reducing industry profits; etc.
ADVANTAGES OF SWOT ANALYSIS
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their weakness and protect against internal
weaknesses and external threats. They also keep a watch on their overall business environment and
recognize and exploit new opportunities faster than its competitors.
SWOT Analysis helps in strategic planning in following manneri. It is a source of information for strategic planning.
ii. Builds organizations strengths.
iii. Reverse its weaknesses.
iv. Maximize its response to opportunities.
v. Overcome organizations threats.
vi. It helps in identifying core competencies of the firm.
vii. It helps in setting of objectives for strategic planning.
viii. It helps in knowing past, present and future so that by using past and current data, future
plans can be chalked out
ix. SWOT Analysis provide information that helps in synchronizing the firms resources and
capabilities with the competitive environment in which the firm operates.
SWOT ANALYSIS FRAMEWORK

The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances as
very simple because of which the organizations might overlook certain key strategic contact which
may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and threats
might be very subjective as there is great degree of uncertainty in market. SWOT Analysis does
stress upon the significance of these four aspects, but it does not tell how an organization can
identify these aspects for itself.
There are certain limitations of SWOT Analysis which are not in control of management. These
includea. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to import
restrictions; etc.
Internal limitations may includea. Insufficient research and development facilities;
b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

The Nigerian Business Environment

Elikwu Michael I. (B.Sc. M.Sc., PhD in View)