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GLOBALIZATION IN ACTION Pressures to Source Locally

30 October, 2015 - 15:56

1Throughout the Third World, MNCs face growing pressures to source locally. In some cash-poor countries, they have no option if operations are to continue. Below, BI presents three cases where firms are meeting Nigeria's requirements in ways that may prove useful to others.

In a recent survey, BI's Africa Group found that, unless the government substantially increases imports, most manufacturers in Nigeria can run their plants at present low levels only until the end of the month. But Nigeria's 1985 budget actually calls for a 30% import cut.

For MNCs in Nigeria, there are three points to consider. First, those planning to continue operations can expect increasing pressure for local sourcing. Second, the government is planning to establish sector-by-sector local-sourcing targets within the next year, along with specific penalties for noncompliance. Third, most local-sourcing opportunities will be in agriculture and related industries. Nigeria offers tax incentives to promote investment in this sector; agro-industry imports also receive favored treatment. So what should companies do? Consider the following examples:

Johnson Wax Nigeria Ltd. Insecticide represents a major portion of the company's business and, until recently, all raw materials were imported. Chukwuji Chizea, technical manager of the US subsidiary, notes that Johnson has invested heavily in both local and overseas R&D to develop local inputs. Chizea asserts that, without it, the company "couldn't have developed any local raw materials." The process requires "imagination, initiative and extensive local knowledge." One result: Johnson found it could use local propellent and so "adjusted the formula to fit this local material."

The key imported element in insecticide is the active ingredient and, though used in very small quantities, it is the most. expensive input. Chizea states, "If and when the petrochemical industry comes on stream, we may be able to find a synthetic active ingredient." But meanwhile, in conjunction with Nigerian universities, Johnson identified certain organic materials, mainly herbal, that have insecticidal properties and may be suitable local substitutes for the active ingredient. "However, prospects can only be long term."

In another example, Johnson previously imported HTH (high-test hypochloride) to get chlorine for bleach, but thought that with some adjustment to the processing procedure it could make the bleach from salt. The company found a local salt lake and was prepared to set up an extraction process. However, Nigeria started a salt factory, which will meet Johnson Wax's local salt needs.

Union Carbide. This Connecticut-based firm, which has 46 battery plants worldwide, including six in Mrica (Egypt, the Sudan, Kenya, the Ivory Coast, Nigeria, Ghana), actively pushes local content in its mediumtech production to cut costs. In their annual planning submissions, Union Carbide requires plants to provide an "operational improvement program" that addresses ways to increase both local and regional content. In Nigeria, for instance, it actively seeks ways to complete more production steps at the plant.

Recently, it cut imports by increasing the production stages of semifinished supplies that go into its battery manufacture. In addition to exploring useable local inputs, Union Carbide uses regionally available supplies, such as manganese from adjacent Ghana, if they meet quality standards. Oswald K Weaver, treasurer of Union Carbide Mrica & Middle East Inc., asserts: "More needs to be done to aggressively search out available local raw materials, even though it may involve additional processing to reach an appropriate quality control level."

Texaco Agro-Industrial (Nigeria) Ltd. Texagri produces and processes cassava into gari, a local staple food. The company considered buying on the local market, but not only wo.uld this have defeated the company's aims of helping Nigerian agriculture, it also gave no assurance of sufficient supply. Texagri now runs its own plantation. E. I. Nwizu, general manager of Texaco (Nigeria) and director of Texagri, states that the processing plant now produces around seven tons of gari per day. "About 70% of this goes to Texaco's service stations and 30% to the open market. To an extent," he continues, "this controls the price of our product to the final consumer and also ensures a wide distribution."