Market entry strategies into Nigeria for South African banks
Date
2018
Authors
Bayode, Onemhinye Iriata
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Abstract
The strategic goals of the top four banks in South Africa include expansion plans into the rest of Africa. Nigeria is the largest economy in Africa and its banking sector is the second largest behind South Africa. These factors, along with the growing middle class consumer sector makes Nigeria an attractive investment destination for South African banks.
Executive management teams grapple with internationalisation strategies. The process of analysing institutional context of the target country, determining the right entry strategy and creating the appropriate business model to ensure profitability can be daunting.
The purpose of this research was to identify and describe the market entry strategies adopted by South African banks that have launched operations in Nigeria, to analyse the internal and external factors that influenced the entry strategy selected, the methods used by South African banks to gain competitive advantage upon entry and the challenges faced in implementing the entry strategy.
Data was collected through semi-structured interviews with executives of the top four banks in South Africa, the president of the South Africa Nigeria Chamber of Commerce was also interviewed along with management consultants with experience in the banking sector in Nigeria and South Africa.
The research findings showed that the key drivers for the expansion of South African banks into Nigeria are market saturation in South Africa, the largely unbanked population in Nigeria and the strategic objectives of the relevant banks to be recognised brands across Africa.
The study found that external factors such as the regulatory framework and not internal factors like workforce skills or operating model influenced the decision whether to enter the market as a wholly owned subsidiary or joint venture (JV).
Respondents indicated that they did not follow Porter (1998) generic strategies for achieving competitive advantage through cost leadership, product differentiation or focus, but rather preferred to compete on customer service.
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Another key finding was that banks which entered the market as wholly owned subsidiaries as opposed to a joint venture tend to be at a disadvantage at the initial stages due to limited brand presence.
Finally, although South African banks have structured models for formulating the entry strategy, most banks struggle with the execution of the strategy. Some of the key challenges faced in implementing market entry strategy in Nigeria is the onerous regulatory landscape and the volatile market due to dependence of the Nigerian economy on the oil and gas sector. Also, the rigid internal operating model of some South African banks impacted the speed of delivery to customers.
This research concludes by proposing a framework for the realisation of strategic objectives of South African banks launching into Nigeria. The framework suggests that the establishment of capabilities such as regulatory acumen, local partnerships, customer intimacy, socio-cultural integration and robust operating model is critical to the success of South African banks launching into Nigeria.
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Banks and banking -- South Africa. Banks and banking -- Nigeria.