This research is based on analysing Guinness’s investment in Cameroon based on environmental factors and what the company should do in order to increase its investment and return in Cameroon.
The main aim of this report is to give an overview of Cameroon’s environmental and also to analyse the alcohol industry and consumption in the country in order to give the company a good advice on whether to carry out foreign direct investment (FDI) in Cameroon or export alcohol to the country.
Guinness already has a manufacturing plant in Cameroon that manufactures beer at very low cost compared to the UK. The market for alcohol in Cameroon is mostly controlled by Les Sociétés Anonymes des Brasseries du Cameroun. Despite the high competition, Guinness has a good chance of surviving in the market because of its unique taste and packaging. The country provides advantages for foreign companies to operate through its trade policies.
The report will be based on secondary data that has already been collected by researchers to analyse the competitive, economic, cultural and political environment of Cameroon.
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.
The two countries involved are the United Kingdom (UK) and Cameroon. A UK company is seeking to increase its investment in Cameroon either by exporting or through foreign direct investment because of the advantage of low cost of production and other policies that will favour the company.
United Kingdom is a developed country in Europe and is one of the most powerful countries in the world with a strong economy. Most companies in the UK today are looking for new manufacturing locations where they can take advantage of low production cost in order to increase their profit margin. There will be not better place to achieve this than operating in a less developed country. On the other hand, Cameroon is a less developed country that is still growing and provides a cheap labour for companies. The main link between Cameroon and the UK is Cameroon was once part colonised by the British. The country’s policies on foreign investment have proven to be it most attractive factor which will be discussed later in the report.
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.
Beer consumption in the UK has been growing over the years because of the growing number of the population and the demand more demand for alcohol. Despite the growing concern of the government to try to reduce the amount of beer consumption in the country, many still consume it during social gathering, parties and also at home when relaxing. Alcohol consumption is not just growing in the UK but also in other countries all over the whole therefore providing a large market for producers. It is estimated that and average of £17 billion of Britons’ income is spent on pubs in a year (ias.org.uk, 2009). In the year 2000, beer manufacturing was valued at 16.4 billion in the UK (ias.org.uk, 2009). Prices for alcohol in the UK have been made affordable by most people and even those below drinking age. This has encouraged a lot of people to buy beer and other alcoholic drinks. In 2006 the total household expenditure on beer consumption was £19,128 million (ias.org.uk, 2009).
This includes the economic factors of Cameroon that the company has to consider in order to determine what kind of investment can be favourable to them
- 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
- Exchange rate; £1=728frs CFA
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).
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.
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).
Figure 1: Cultural dimension chart
Source; Hofstede, 1984
Source; 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 under West Africa. This means Cameroon will have the same dimension as Nigeria, Ghana and Sierra Leone. Using Hoofstede’s cultural dimension, a few conclusions could be made concerning the culture and behaviours of Cameroonian
- That there is a big gap between people of lower power and those of higher power. This means there is inequality in decision making, idea generation and tasks being carried out in most companies. Cameroon has a power distance of 77% while the UK has 37% (Hofstede, 1984).
- Cameroonian work better in a group than as individuals due to the benefit they gain working together in these 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.
- 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.
- 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.
- 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. 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
Cameroon’s population has been growing over the years and with more of its population moving towards teenagers and adults. This has provided a large market for alcoholic drinks in the country. The country has a population of more that 18 million people with per capita income of $2,300 (cia.gov, 2008). As mentioned in Hofstede’s cultural dimension, there is unequal distribution of income in the country. There are the very rich people who live in cities and large towns and poor once who live in the village. Those with low income consider buying beer as a luxury. They consume or purchase beer when there is party or celebration. On the other hand, high income earners consume alcohol whenever they want to, either at home relaxing or during a celebration.
Cameroon’s business system is different from that in the UK. Most of the big corporations and companies in Cameroon have always been controlled by the government in a way that the government owns almost 100% of the stake in these businesses. Cameroon’s economy is being supported mostly by agriculture and service companies to a certain extent. The manufacturing sector of the country is still growing with many American companies operating in the country. Despite the changes in policies for foreign investments in the country, most companies find it difficult to invest in the country because of lack of information. There are some other European countries like France that are already investing in the country and have formed a good relationship with the Cameroonian government. Most of the manufacturing companies in the country are located in the economic capital Douala. Les Sociétés Anonymes des Brasseries du Cameroun is a major player in the brewery industry in Cameroon. The company is a subsidiary of the French company Brasseries et Glaceries d’Indochine. Brasseries et Glaceries d’Indochine (BGI) has about 75% stake in the company, Heineken about 9% and the president of the Cameroon also has a major stake in the company (lesbrasseriesducameroun.com, 2009). Les Brasseries du Cameroun is well known by the citizens of the country and also by neighbouring countries like Equatorial Guinea, Gabon and Chad where their products are also being exported. Operating in such a market might be difficult. Les Brasseries du Cameroun produces different types of beers which include; Beaufort, “33” Export, Castel Beer, Mützig, Tuborg, Amstel, Heineken and Isenbeck (lesbrasseriesducameroun.com, 2009).
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)
The UK had £85.8 billion of foreign investment in other countries abroad (statistics.gov.uk, 2009). This is almost twice lower than the £159.1 billion that was recorded in 2007(statistics.gov.uk, 2009). The UK reduced most of its investment in America and Europe due to the credit crunch, but did increase its investments in Australia and Oceania where crises where insignificant (statistics.gov.uk, 2009). Investment in Africa fell from £4.7 billion in 2007 to £0.9 billion in 2008 (statistics.gov.uk, 2009). Most of UK’s FDI in being carried out in European countries like Luxemburg and the Netherlands.
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.
The company might face the following challenges
- The first challenge will be adapting to the culture of the country and how the people behave at work and with their personal life will be something the company has to get used to.
- The second challenge is recruitment and training. Unlike the UK where there are many ways the company can advertise its vacancies, Cameroon has just limited sources of information where candidates can access job vacancies. Most vacancies are advertised within the companies or take place where a worker in a company tells friends or families about the vacancies. This makes in difficult to reach real potential candidates for a particular job.
- Another difficulty the company will face will be ethics and corporate social responsibility to reduce the effect alcohol has on individuals. The Cameroonian government is trying as much as possible to reduce the rate of alcohol consumption especially amongst the police and teenagers. This will be what the company has to work towards in order to accomplish this duty
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 gave an overview of the company, the industry and also the countries to be discussed. It later talked about cultural aspect of the company by looking at Hofstede’s Cultural dimension and indicating how the culture affects 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. A further look at the business and industrial environment was made to indentify competitors and the business is carried out in Cameroon. The report looked at the influence of IMF, WTO and CAMAC on trading and investment in Cameroon and some challenges the company will face operating 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.
Affordability of alcohol, 1980 to 2006
Hofstede’s Cultural Dimension
Source; Hofstede, 1984
Source; Hofstede, 1984
Main economic and financial indicators. 1999/2001 and 2001-2006
|National accounts||Annual variation as a percentage|
|Gross domestic demand||95.7||96.4||101.3||100.8||99.7||100.4||101.0||98.8|
|Change in inventories||0.2||0.7||0.1||0.0||-0.6||0.7||1.7||0.0|
|Export of goods and non-factor services, f.o.b||21.5||23.3||21.9||19.9||20.2||19.4||20.4||22.2|
|Import of goods and non-factor services, f.o.b.||17.2||19.7||23.2||20.7||19.9||19.8||21.4||21.0|
|Table I.2 (cont’d)|
|Money and credit (end of period)||Annual variation as a percentage|
|Money supply (M2)||18.9||13.7||12.9||17.6||1.0||6.4||5.2||8.4|
|Prices and interest rates||Percentage|
|Inflation (variation in consumer prices, annual average, December)||1.2||4.5||4.5||2.8||0.6||0.3||1.8||5.1|
|CFAF franc/US dollar (annual average)||615.7||712.0||733.0||697.0||581.2||528.3||527.5||522.9|
|Real effective exchange rate (%)a||-3.8||3.1||3.1||3.4||2.5||0.2||-2.2||..|
|Public finances||Percentage of GDP unless otherwise indicated|
|Primary fiscal balance (deficit (-))||6.2||7.4||5.3||6.2||6.3||4.7||6.6||5.2|
|Basic fiscal balance (deficit (-))||4.0||4.2||2.4||3.7||3.9||2.8||5.1||3.8|
|Fiscal balance, commitments basis, excluding grants (deficit (-))||3.4||2.8||1.0||3.3||3.4||2.1||4.8||2.8|
|Fiscal balance, commitments basis, including grants (deficit (-))||3.4||3.5||1.8||3.6||3.9||2.2||4.9||3.2|
|Current account balance (including official grants, deficit (-))||3.2||-0.5||-6.6||-6.5||-7.0||-7.3||-4.0||-1.6|
|Current account balance (excluding official grants, deficit (-))||2.2||-1.8||-8.0||-7.7||-7.7||-7.6||-4.3||-2.0|
|Debt servicing/income ratio||22.1||36.7||39.0||34.0||36.0||33.0||24.2||20.3|
|Debt servicing/export of goods and non-factor services ratio||14.7||26.3||30.4||28.7||29.0||25.3||19.8||15.5|
|External reserves (in months of imports c.i.f.)||0.6||1.9||2.0||3.2||2.6||2.9||3.5||3.9|
|Terms of trade (annual variation, percentage)||79.3||33.2||0.0||5.6||-10.9||10.0||36.5||29.8|
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