Poor state of infrastructural facilities was a major factor considered in making this decision by the South Korean electronics giant.
The Chief Executive Officer of Samsung Electronics Africa, Sung Yoon, revealed that his company has shelved plan to build a manufacturing plant in Nigeria. The reasons given for this decision are poor economic conditions and infrastructural facilities.
Mr Sung made this revelation during an interactive session with reporters in Lagos on Thursday, January 18, 2018. He said low market share, among other reasons, made the company to take this decision.
The company had manufacturing plants in Vietnam, China, South Africa and Korea. With this decision, having one in Nigeria has been made a thing of the future, however the country’s population of 180 million was noted as a power for the future.
Here are five main reasons that made Samsung Electronic halt its plan to have a manufacturing plants in Africa's largest economy.
1. Non-availability of raw materials
The Samsung’s head noted there are about 400 components needed to produce a mobile phone and none of which is available in Nigeria.
Siting a manufacturing plant close to the source of raw materials is one consideration all producers don’t play with. To them (manufacturers), satisfying this condition is all for business and economic reasons.
2. Small market size
Aside non-availability of needed raw materials, Mr Yoon revealed that the company’s market share in Nigeria is very small.
“Samsung is one of the consumer electronics company in Nigeria, but its share of the Nigerian market is smaller to South Africa’s. In South Africa, the company’s smartphones market size is 80 percent, but is significantly lower in Nigeria,” said Yoon.
Based on this, having the plant in South Africa is more preferred to Nigeria.
3. Infrastructure problem
The poor state of infrastructural facilities was also cited as a major factor considered by Samsung before dropping the idea.
Many of the support facilities in Nigeria have collapsed due to poor maintenance or wearing problem (long years of usage). For many manufacturing companies in Nigeria, this is one of their major challenges of operating in the country.
4. Low return on investments (ROI)
Low return on investments was also noted as a reason for this decision. Since the company has a low market share, it is expected that low demand for its products will make it hard for the plant to Break-Even in a short time.
“We are trying to be a local company here. Building factory depends on the return on investment and efficiency of the economy,” Yoon said.
5. Grey market and products
Presence of many grey products and market in Nigeria is one of the reasons cited by Samsung. A Grey market is a trade of a commodity through distribution channels that are legal but not intended by the manufacturers. This is also known as a Parallel Market.
“There are lots of grey products coming into the country and this will affect the return on investment,” he said.
As a result, Samsung will find it hard to moderate price of its products. This, thus, may lead to loss of investments.