Expanding Your Business Presence: Distribution Model vs. Incorporation in Nigeria

incorporation

As the manager of a team at a multinational company that is venturing into the Nigerian market, you might find yourself asking, “what is the best way to build my company’s local presence in the Nigerian market?”. The truth is that most multinational firms adhere to either a distribution model or choose the incorporation route while operating in Nigeria.

 

Independent of how you decide to grow your business in Nigeria, it still pays to have a clear plan in place that you and your team can stick to as you build your presence in the region. Creating a plan will also allow you to deal with any business challenges that might come your way. Also, constructing a plan will help you set objectives and provide steps to achieving your business goals, which will keep you on the right path as you grow your business.

 

When it comes to the different paths you can take to grow your business in this country, most international organizations do choose to either incorporate a local entity in Nigeria or partner with a local business that will handle most of the company’s “on-ground” operations. Highlighted below are the advantages and the disadvantages of both options.

 

The Incorporation of a Local Entity

 

Advantages

If you do decide to incorporate a local entity, you will gain more control over your brand and be able to directly facilitate your business’s operations and growth. Incorporation also translates into full ownership of your business priorities and objectives. Having full ownership of your business goals means that you can shape the local, incorporated entity to match your organization as you see fit.

 

The freedom that comes with incorporation gives you the ability to hire employees using your own criteria; employees who are dedicated to applying their skill sets to help grow your business. Hiring employees of your own choosing also allows you to shape the culture of this local, incorporated entity to match the culture of your own organization.

 

Furthermore, through incorporation, you will be able to directly manage your customer relationships and distribution channels to ensure that your products reach your end users quickly and efficiently. Also, most importantly, incorporation of a local entity gives you complete ownership of your intellectual property, which helps protect your brand identity.

 

Disadvantages

The downsides to incorporating a local business include various factors, such as more time spent on setting up the local entity and less time on getting your product into the hands of the consumer. Running into unexpected challenges like difficulty staffing your new office, as well as taking time to learn more about the Nigerian market landscape and regulations, can also add to the lag time.

 

Moreover, it is important to remember that you are still a new entrant in the Nigerian market, which means that you are prone to making more mistakes as you build up your local entity and overall business. You will also have to put in the effort to grow your professional network in Nigeria if you have not yet made many connections prior to entering the Nigerian market.

 

The Distribution Model: Partnering with a Local Business

 

Advantages

If you choose to partner with a local business, you will have immediate access to information and insights about the market landscape that you were not aware of previously. It is also necessary to note that this access extends beyond market knowledge to connections with other local groups, such as distributors, that will be able to get your products to your target customer quickly and efficiently.

 

Partnering with a local entity also means that you will have to expend fewer resources on human capital, and can invest more in the process to achieve your business goals. Additionally, partnering with a distributor means that they will effectively deal with the complex regulatory process that the Nigerian market has in place, which means you can pour the time and money you would spend navigating that process into other opportunities.

 

Disadvantages

However, partnering with a local distributor is not without its disadvantages. One of the downsides is that you run the risk of having limited control over your intellectual property and access to key market information if your partner is not transparent, and does not communicate openly and share information regularly. Limited ownership of your intellectual property also equates to limited ownership of your marketing opportunities and overall brand image and identity.

 

You would also have no say in the hiring of your business partners employees if you choose this partnership option, and the local entity in question might not fit your company’s culture. Furthermore, finding the right incentives to motivate your partner might prove to be difficult, and it will also be hard to determine your partner’s level of dedication to making sure your product reaches the end user. The aforementioned fact is especially true in this instance because you will no longer have a direct relationship with the end user if you pursue this model.

 

Moving Forward

Try to focus on your business priorities and objectives by letting those factors dictate whether you want to incorporate a local entity, partner with a local business, or use a hybrid model that integrates both methods. Identifying your short-term and long-term goals before operating in the Nigerian market, as well as fully understanding the pros and cons of both methods, will help you decide the best approach for your business as a new entrant in this country.

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About The Author

Nifemi Aluko

Connecting global organizations with quality information and insights to help them succeed in the Nigerian market… Passionate about business, technology, and music.

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