Table of Contents

1.0)       Introduction. 2

1.0)       Socio-Cultural Environmental analysis. 3

1.1)       Power distance index. 3

1.3)       Masculinity. 5

1.4)       Uncertainty Avoidance. 6

1.5)       Long-term Orientation. 6

2.0)       Economic environment. 7

3.0)       Government and policies in Cameroon. 8

1.0)       Influence of international institutions of trading between Cameroon and UK. 9

2.0)       Recommendations. 10

Conclusion. 11

Appendix. 12

References. 17

1.0)       Introduction

International business is an important topic today because of the desire for companies to expand to different geographic areas. Most companies today are looking for new markets to expand and reduce unit costs in order to make more profits and stay viable. Investing in developing countries has been one of the strategies international companies are implementing today to achieve this.

This report will be giving an overview of the Guinness Company and detail what analysis the company can carryout before locating or carrying out any form of investment in Cameroon.

Guinness was founded by Arthur Guinness in 1759. Despite competition from other brewery companies, Arthur Guinness decided to export his beer to England. In all, six generations of the Guinness family have been involved in the management of the company. After a series of successors, the company was listed on the London Stock Exchange in 1886 because of its great success over the years. Benjamin Guinness was the last successor, as a chairman, from the family: he later resigned in 1986 after taking over in 1962. The company opened its first overseas brewery in 1936 and more followed in Nigeria (1962), Malaysia (1965), Cameroon (1970), and Ghana (1971). Today the company owns breweries in over 40 countries and sells to more than 150 countries in the world with an average sale of 10 million glasses a day.

This report is intended to give an analysis of factors Guinness has to consider before deciding whether or not to invest in a developing country. This report will start by giving an overview of the cultural analysis of Cameroon compared to that of the UK using Hofstede’s Cultural Dimension model. This model is used by companies to determine the behaviour of overseas markets – (in this case Cameroonians) – and what Guinness should consider before carrying out direct investment in the country. The five dimensions that will be used in the report include: power distance, individualism, masculinity, uncertainty avoidance and long-term orientation. The report will later give some economic facts about Cameroon. These economic facts will include: Gross Domestic Product (GDP), unemployment rate, insurance policy, industrial growth rate, inflation and main economic influences. These data are used by the company to determine if the economic condition in the country is favourable. The report will also look at policies set by the government concerning foreign nationals investing in the country and conditions they have to fulfil in order to get the same benefits, without discrimination, that Cameroonian investors get. The report will give an overview of the Free Trade Zone under policies set by the government. The report will also be looking at the relationship Cameroon has will the UK that will help to influence business negotiations and maker investment in the country less complex. International institutes also play a role in international business in order to make sure that both parties involved benefits from any business deals. International institutes include World Trade organisation, United Nations, European Union. Their influence on international business will be mentioned in the later part of the report. A final recommendation will be given to advise the company if it is advisable to open more breweries in different locations in Cameroon.

1.0)       Socio-Cultural Environmental analysis

The culture of a country is a highly important aspect of communication in when doing business. Culture refers to the socially transmitted behaviour, norms and values and believes that govern a particular group of people (Hofstede, 1984). Any UK company moving to Cameroon to carry out operations should be able to study the cultural differences, especially when it comes to employing Cameroonians. The best and most used model of cultural studies was developed by Geert Hofstede. He developed a model know as Hofstede Cultural Dimensions. Hofstede (1984) described culture as a source of conflict than of synergy which should be well handled in organisations, especially with international companies. In his study, Hofstede (1984) used five dimensions to describe differences in culture between countries and regions. The five dimensions include

• Power Distance Index
• Individualism Vs Collectivism
• Masculinity Vs Femininity
• Uncertainty Avoidance Index
• Long Term Orientation Vs Short Term Orientation

In this study, cultural dimension for Cameroon is placed oin West Africa. This means Cameroon will have the same dimension as Nigeria, Ghana and Sierra Leone.

1.1)         Power distance index

This is when less powerful people accept that power is not divided equally (Hofstede, 1984). This could be an organisation, country or family. Cameroon has one of the highest power distances of 77% compared to 55.6% of the world’s average (Hofstede, 1984).  This means Cameroon has a high level of inequality in power and wealth in the country. This is not something that has been imposed on people, but what those with less, or no, power distance have come to accept and is part of the norm of the country. This needs to be taken into consideration especially by a company from the UK with a power distance of 35%. This means the company should expect a greater power distance between management and employees in Cameroon than that they are used to in the UK. A high power distance might indicate there is a high difference in compensation and wage. Most of the final decisions in a country like Cameroon are made by the boss and maybe without consulting anyone. This does not just happen in families but also in a company. The hierarchy is really strong in such societies, whereas in the UK decision-making involves almost everyone that works in an organisation.

Figure 1: Cultural dimension chart

Source; Hofstede, 1984

Source; Hofstede, 1984

• Individualism Vs Collectivism

This is the extent or degree to which individuals work in a group or as individuals (Hofstede, 1984). Individuality measures how loose the bond it between individuals where individuals take care of themselves and function individually without the support of other people (Hofstede, 1984). Collectivism measures how individuals work in cohesive groups and families for protection in return for unquestionable. From the figure above, it can be seen that Cameroon has a lower rate of individualism than the UK. This means they are likely to work better in a group or as a team than as individuals. This might be because of the benefit they gain working as a team, whereas in the UK, working as an individual is better than working as a group (Hofstede, 1984). Therefore, setting up a company in Cameroon will mean the company will have to assign work in teams or groups. The Individuality index for Cameroon is about 20% compared to the 85% in the UK (Hofstede, 1984). A country like Cameroon with low rate of individualism indicates respect for age and wisdom (Hofstede, 1984). Change in a collectivism country is very slow. The implementation of any strategies to adapt to changes tends to be slower that in a country where individualism is high.

1.3)         Masculinity

This is the distribution of role between gender in an organisation, family or a country (Hofstede, 1984). This study is based on two aspects: men in the masculine countries are more assertive and competitive and women in feminine countries are more modest and caring (Hofstede, 1984). Cameroon has a masculinity rank of 46% compared to 51% of the average world’s rank (Hofstede, 1984) and 66% in the UK. This means there is high competition and that is a distinction between men’s work and women’s work (Hofstede, 1984). This means there are some jobs that can not be given to women because they are considered to be men’s jobs.  Any company moving in to Cameroon has to consider this aspect of culture sand tradition before establishing in the country.

1.4)         Uncertainty Avoidance

This is how much the society can tolerate uncertainties and ambiguity, which is the search for truth (Hofstede, 1984). This refers to the extent to which people are comfortable with unstructured situations and how far laws and rules are used to prevent uncertainties to happen (Hofstede, 1984). Cultures that are more uncertainty avoidance try to minimise risks by using rules, laws and other security measures to reduce risks (Hofstede, 1984). Cameroon has the 54% uncertainty avoidance compared to the 35% in the UK. Cameroon has a higher uncertainty avoidance level than the UK. This means they are more like to have a more formal way of dealing in business, avoiding differences, provide detail plan on how jobs are being done and follow them, clear about expectations and express emotions. This is different from the way UK companies operate. In a low uncertainty avoidance country like the UK, they are more informal with business operations and accept risks. Rules are not restricted in business operations. This is very important to consider, especially if the company plans to have a business partner from Cameroon. They should know Cameroonian do not take as much risk as the British and should therefore try to compromise of risk taking procedures.

1.5)         Long-term Orientation

Countries that are long term oriented are more perseverant and look at long term goals than countries that are short-term oriented are more about meeting obligations and protecting one’s ‘face’ (Hofstede, 1984). Saving face is avoiding any shameful act that is not going to make an individual or a company loss its respect to others or to the society. This is very common in less developed countries. Cameroonians are more long term oriented than the British: Cameroon has a long term orientation of 16% compared to UK’s almost 25%. This means in Cameroon long term orientation is lower than that of the UK meaning more people are not afraid to tell other what they have in mind and point out errors (Hofstede, 1984). In this culture, people do not avoid doing things that will cause others to lose face, they say what is right and are expect everyone to be treated equally (Hofstede, 1984). This is the case in the Untied Kingdom where there is equality and people treat others the way they like to be treated. This looks are long term effect on actions that people take at the moment.

2.0)       Economic environment

• Minimum age to work is 14 years old to increase labour supply (1992)
• As a member of the Multilateral Investment Guarantee Agency, Cameroon benefits from a flow of investment in to the country that is backed by political risk insurance against non commercial risks (wto.gov, 2007).  As a member they also benefit from the foreign investment the organisation attracts to its member countries (wto.gov, 2001).
• There is inequality in the distribution of income in the country (cia.gov, 2009)
• Oil and cocoa prices have a great influence on the economy because they are the main produce of the country (cia.gov, 2008)
• The estimated GDP growth rate is 3.9% and the GDP per capita is $2,300 for the country (cia.gov, 2008: State.gov, 2009)
• Industrial sector of the country makes up just 15.9% compared to 43.6% agriculture and 40.5 services industries (cia.gov, 2008). This means there is great opportunity for manufacturers to locate in the country
• Cameroon has an unemployment rate of 30% (cia.gov, 2008)
• It has an inflation rate of 5.3% as at 2008 (cia.gov, 2008)
• Industrial growth rate is 4.2%
• Most of the international companies operating in Cameroon transport their goods by sea. The roads are continuously being improved by getting them tarred and many airline companies are now operating in the country
• Possible high demand with a population of 18,879,301

The European Union has been Cameroon’s greatest place to trade with France being their main trading partners and America being their leading investors. This means the country is open to any other foreign investment from European countries including the UK.

The country has reformed a lot of policies in order to encourage foreign growth after the depression that lasted until 1995 (wto.org, 2006). This has been done by liberalisation prices and privatisation of many government owned companies (wto.org, 2006).

3.0)       Government and policies in Cameroon

Foreign investment is seen by the Cameroonian government as a key factor for economic development and poverty reduction (Dorosh and Sahn, 2000).  Investment policies set by the government in a country is one of the biggest influences on the economy of the country. The economy was facing difficulties before 1990 and, therefore, there was a need for the rectification of the country’s investment code to encourage investors to invest in the country and improve the economy (Samuelson, 2009). The investment law in Cameroon was revised in 1990 and incentives and guarantees were offered to investors to encourage Cameroonians and foreigners to invest in the country (Samuelson, 2009). According to Samuelson (2009) in the new investment policies;

• foreign investors were given the same right and enjoyed same liberty as Cameroonian investors
• Foreign nationals had the right to enter into any contract they deem is of their interest
• Foreign nationals have the right to enter, travel and reside in Cameroon with their partners, managers and foreign staff and members of their family
• Foreign nationals have the right to fire and hire anyone as long as they follow the labour and social insurance legislation
• The Free Trade Zone in Cameroon came into effect in 1990 where industries exporting 80% of their products qualified for custom, administrative, fiscal and regulatory incentives (Samuelson, 2009). This was done to encourage industrialisation in the country (Samuelson, 2009). This was available to both manufacturers and service industries wanting to operate in the country

Foreign residents should have a resident permit in order to enjoy the above benefits (Samuelson, 2009). Business licenses to investors were made easier to get by the policies. This means there is, in theory at least, no discrimination between Cameroonians and foreign nationals who invest in the country as long as the foreign national has a resident permit. They law on investment treats all investors as equals. Economic factors will help the company know the economic trend of the country and help for better decision making on how to invest. Favourable economic conditions will encourage the company to invest in Cameroon.

Cameroon has a strong relationship with UK as part of the Commonwealth of Countries. As part of the Commonwealth, Cameroon benefits from scholarships offered by the organisation.

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1.0)       Influence of international institutions of trading between Cameroon and UK

The World Trade Organisation (WTO) has been one influence on the way companies in Cameroon and the UK function and carries out trading. WTO has 148 members and encourages trade between the members (Vasan, 2009). WTO encourages trade between Cameroon and other members of the organisation in order to develop the country’s economy. The WTO has a great influence in the country, especially during its transition period moving from economic depression to economic growth. This transition period is implemented under WTO Agreement (wto.org, 2001). In 2001, WTO had concerns about implementation of the Agreement, saying the country lacked training and information concerning the Agreement and had not yet fulfilled it (wto.org, 2001). WTO plans to provide technical assistant can help facilitate the country’s integration in the trading system (wto.org, 2001).

The government has formed a relationship with the IMF (international Monetary Fund) and World Bank to spur investment in the country in order to improve trade and standard of living in the country. The IMF emphasises on privatisation for better control and increase efficiency and poverty reduction programs (wto.org, 2001).

CEMAC also plays an important role in Cameroon’s trade policies in such areas like trade services (wto.org, 2001). One of the objectives of CEMAC is to establish a unified market that allows capital flows and open trade between its members (wto.org, 2001). Members of CEMAC countries are placed a duty free trade with Cameroon. The country still has a strong trading relationship with European countries. Most of the investments today in Cameroon are in the form of direct investment, though limited; it is still growing (UNCTAD, 2000)

2.0)       Recommendations

Foreign Direct Investment (FDI) is determined by the number of foreign investment made by a company in the form of assets used for production (Froot, 1993). Any company that wants to carry out FDI should be able to carry out environmental analysis of the country. The environmental analysis involves those factors that have also ready been discussed in the report. These analyses include; socio-cultural, economic and political environmental analysis. After carrying out the analysis, the company can now decide what kind of investment they want to carry out.

Following the benefits the company will gain from investing in Cameroon, it will be advisable for the company to carry out FDI in the country. As a foreign company, Guinness is going to enjoy the benefits internal investors are enjoying. This means there will be no discrimination between foreign nationals and Cameroonians who want to invest in the country. Guinness already has a brewery in Cameroon that produces its drinks; opening another brewery or expanding on the existing one will be an advantage to the company. The country has opened its business to many foreign investors. This has grown over the years and has provided opportunities to companies like Guinness.

The company can take advantage of the incentives the government provides to industrial investors. This includes taking advantage of the free trade zone the government has established to encourage companies to invest in the country. Guinness can open this new site to manufacture drinks that will be for exporting to other countries only, and not for consumption in Cameroon. By doing this, the company will take advantage of the free trade zone policy which require a company to export 80% of it products. The question here is why open a manufacturing plant just for exporting beer produced by the company. Apart from the free trade zone policy the company will take advantage of, the company will also benefit from reduced tax on export goods and cheaper labour. The cost of production will be lower than when produced in Ireland. This will help generate more profits when the drinks are being exported and sold in Europe. The UK and Cameroon are part of WTO and therefore benefit from policies by the organisation that will encourage trading between the two countries. There are different ways the company can carry out FDI. The most suitable for the company is to carryout manufacturing at existing plant or by going into a joint venture with other brewery companies like Brasseries Du Cameroun, one of the main manufacturers of drinks in Cameroon.

Conclusion

This report has given an overview of Guinness and its decision on what kind of investment to carry out. The first part of the report discussed the cultural aspect of the company by looking at Hofstede’s Cultural dimension and indicating how the culture affect people’s behaviour and the differences in culture between Cameroon and the UK. The report later looked at the economic environment that includes economic facts about Cameroon and how these can help the company to invest in the country. These economic factors include: Gross Domestic Product (GDP), unemployment rate, insurance policy, industrial growth rate and inflation. The report further looked at economic policies set by the government in accordance with international institutions like the WTO and IMF, in order to encourage FDI and growth in the country. The report finally looksed at the influence of IMF, WTO and CAMAC on trading and investment in Cameroon.

To be able to carryout FDI, it is suggested that Guinness carries out an analysis about the country to find out what factors will benefit the company’s operations. This analysis is very important for the company because it decides its success or failure. It will then become clearer whether Guinness should operate in Cameroon at all, and, if so, whether it should do so alone or with a local business partner.

Appendix

Hofstede’s Cultural Dimension

Source; Hofstede, 1984

Source; Hofstede, 1984

Main economic and financial indicators. 1999/2001 and 2001-2006

References

• CIA.gov (2009). The world Factbook; Cameroon. https://www.cia.gov/library/publications/the-world-factbook/geos/cm.html Date accesses 22/12/2009

• Dorosh, Paul and Sahn, David (2000). A General Equilibrium Analysis of the Effect of Macroeconomic Adjustment on Poverty in Africa; A journal of Policy modelling. Vol. 22
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• UNCTAD, (1996, 1998, 2000, 2002) World Investment Report, The United Nations. Geneva