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MULTINATIONAL CORPORATIONS AND
NIGERIAN INDUSTRIALIZATION: PEUGEOT AND VOLKSWAGEN
ABSTRACT
This
is a study on the Nigerian operation of Volkswagen of Germany and Peugeot of
France. Through this study, I try also to throw light on the so called ‘New
International Division of Labor’ and on import substitution industrialization
of the Assembly type as a strategy for industrialization in third world
economies. I also examine in the process, political economy of joint ventures
between foreign capital and the state in Nigeria. In both of these respects, I
seek to demonstrate why this form of so called ‘industrialization’ has become
so profitable for the multinationals and so disastrous for the third world
nations like Nigeria which have opted for that path of ‘development’. The
advantages derived by the multinational corporations from this type of “industrialization”
are so vast – as our study of Peugeot and Volkswagen will confirm that it is
easy to see why it has become a standard form of foreign ‘investment’. The
consequences of this type of industrialization for third world nations have
already become clear in Nigeria. The objective of this essay is to examine how
the operations of Peugeot and Volkswagen have contributed to this crisis in Nigeria.
In the final analysis, however, I regard this not as study on “multinationals”
or “industrialization” or any other general problem, but specifically as a
contribution to the very rare research on Peugeot Automobile Nigeria Ltd and
Volkswagen of Nigeria Ltd.
TABLE
OF CONTENTS
Title
Page - - - - - - - - - - i
Certification - - - - - - - - - ii
Dedication - - - - - - - - - iii
Acknowledgement - - - - - - - - iv
Abstract - - - - - - - - - - vi
Table
of Contents - - - - - - - - vii
CHAPTER ONE
1.1
Introduction
1.2
Sources and Research Methods
1.3
Background of Volkswagen and Peugeot
CHAPTER TWO
2.1 How the Companies Operate (i)
2.2 VWON and the Policy of Obsolescence
CHAPTER THREE
3.1 How the Companies Operate (ii)
CHAPTER FOUR
4.1 The State and the Companies
4.2 Conclusion
Bibliography
CHAPTER
ONE
1.1 INTRODUCTION
The emergence of independence in 3rd
World countries has led to joint ventures in association with multinational
corporations as a strategy of industrial development. These joint ventures have
taken the form of import substitution or export oriented industrialization.
This so called industrialization of the periphery has constituted the essence
of the so-called “New International Division of Labor” (NIDL). According to the
ideology of the NIDL, Third World Countries are no longer “drawers of water or
hewers of wood”, but are on the path to capitalist industrialization*.
In reality, the NIDL is not a
transformation of the exploitative relations engendered by imperialism but a
higher and more complex stage of dependence. It is a form of industrialization
in the periphery that has to transform superficial aspects of the economic
structure without really impairing or destroying the ability of international
capital to extract surplus value.
The rearrangement of the international
capitalist system entailed in the NIDL has been necessitated by two developments,
the first of which can be ascribed to political independence in the peripheral
countries and the 2nd to the internal contradictions of metropolitan
capitalism itself. The dissolution of colonial state structure presented
important new challenges to imperialism.
Political independence led to the
evolution of new factors favorable to the industrialization of the periphery.
These included pressures by third world leaders for domestic manufacture; the
threat posed by discriminatory tariffs and the possibility of being shut out by
import restrictions; lavish capital privileges for industrial investments and
tax breaks and other incentives that greatly raised the returns to foreign
capital in these countries. Among these incentives are monopoly market
privileges associated with investors who have been able to jump behind tariff
barriers.
A second factor was the contradictions
in post-war metropolitan capitalism itself. Among these were:
1.
The increased rivalry among the main
capitalist powers with the post-war recovery of Germany and Japan, the
prodigious post-war development of capitalist forces of production (new
technology etc.) and the unprecedented concentration of capital in the form of
the multinational corporation.
2.
Increases in labor costs in America
and Europe with the emergence of strong
labor unions, affecting both profit margins and (more important still) the
ability of Euro-American capital to compete against the new “Japanese threat”.
These factors led to an increasing
tendency (led by the Americans) to relocate plants and labor-intensive
manufacturing processes to a number of third world countries. This process of
relocation was conditioned on certain technological advances in communications
etc. as well as in the industrial process itself that made it possible to
collapse previously complex production processes into elementary units, so that
even unskilled laborers could easily be trained to perform otherwise complex
operations. These decomposed production processes were re-integrated only
within the world wide structure of the multinational corporation (MNC) itself.
These two factors, (a third – the
emergence of socialism as a competing option against world capitalism, will not
be discussed here) have led to the spread of industry to formerly raw material
producing countries and specifically, to the emergence of two distinct forms of
industrialization so-called ‘export oriented’ and ‘import substitution’
industrialization. Export oriented industrialization has been confined to a few
countries, mostly located in South East Asia (South Korea, Taiwan, Hongkong,
Singapore) but also includes a handful of non-Asian countries (e.g. Puerto Rico, Malta).
The crucial conditions for this type
of industrialization is the existence of large masses of cheap but skilled and
highly productive labor, a repressive regime that ensures labor discipline as
well as the sanctity of foreign investment, and well developed infrastructure.
In these countries production and distribution take place in theory on national
territory but in reality, within the confines of the foreign corporation – in
plants owned by the foreign corporation or its subsidiaries, on the basis of
mostly imported raw materials (probably supplied by another subsidiary), for
external markets controlled by the corporation. Research and Development (R and
D) and the most capital intensive aspects of the production process remain
concentrated in the metropolis. Because of the organization of production,
relatively little technology is transferred and foreign exchange earnings
remain low.
In Africa, the dominant (indeed almost
exclusive) form of industrialization remains import-substitution
industrialization, the production for the local marker of formerly imported
commodities. Unlike export oriented industry little or no export is involved,
the main objective being to supply the local market. The ideal conditions for
import-substitution industry are a large internal market, extensive investment
incentives guaranteed by a state which is also willing to protect foreign
investment, and monopolistic or oligopolistic conditions protected by tariff
barriers. Labor productivity is not such a crucial consideration since (given
the existence of oligopoly/monopoly) all costs can always be passed on to the
final consumer. Import – substitution also makes particular sense given the
existence of a product where local manufacture involves much ‘weight - saving’
e.g. automobile assembly.
The objective of this study is to
examine the limit of the so-called “New International Division of Labor” (NIDL)
and of Import Substitution Industrialization (ISI) of the assembly type as a
strategy of industrialization in third world economics, with specific reference
to the vehicle assembly operations of Peugeot and Volkswagen in Nigeria, It is
also intended to shed some light on the political economy of joint ventures
between foreign capital and the state in Nigeria. In both of these respects, it
seeks to demonstrate why this form of so-called “industrialization” has become
so profitable for the multinationals and so disastrous for the third world
nations like Nigeria which have opted for that path of ‘development’.
The critique of Import-Substituting
Industrialization (ISI) is of course well established. Central to this type of
industrialization is the emphasis on imports of plant, machinery, semi-finished
materials, management and technical services, usually on the basis of high cost
foreign credits. Because of their extreme import dependence this type of
industry is notorious for its lack of linkage to the domestic raw material
base. Given its high import content this kind of industrialization actually
accentuates rather than relieve pressure on the balance of payments; at best it
results not so much in a decline in absolute import levels as in a shift in the
composition of imports.
Secondly, since most of the industrial
activity involved is simply terminal stage processing (assembly activities,
etc.), the bulk of the value is already embodied in the imported semi-finished
materials. Much of the time so-called ‘manufacture’ involves little more than
what Nabudere labels as the ‘packing and re-packing’ of imported products.
Manufacturing is thus unable to generate the value necessary for accelerated
accumulation and transformations. Precisely also because of the terminal
character of the operations little relevant technology is transferred. In any
case, so complete usually is the faith in foreign technology that no programme
is foreseen for the development of local forms of technology that would respond
to the availability of vast reserves of surplus labor.
This kind of local manufacture has
thus posed little threat to the interest of foreign capital and has in fact led
to new levels of profit and penetration by MNCS. Indeed the advantages derived
by MNCS from this type of ‘industrialization’ are so vast, as our study of
Peugeot and Volkswagen will confirm – that it is easy to see why it has become
a standard form of foreign ‘investment’. Complete technical (and often
administrative) control of large assets with a minimum investment of their own
capital, the transfer to the new locations of otherwise absolute equipment (on
which high returns are then guaranteed by monopoly market privileges), opportunities
to maximize their profits (often at the expense of the local subsidiary)
through transfer pricing and accounting, and continued integration to the
metropolitan rather than the local economy – these are some of the privileges
opened up by this kind of business operation.
All these consequences have already
become clear in Nigeria. The burden of this essay is to examine how the
operations of Peugeot and Volkswagen have contributed to the current crisis in
Nigeria.
1.2 SOURCES AND RESEARCH METHODS
As will be obvious to the Nigerian
reader (especially one who has researched on either VWON or PAN) much of the
material used in this study originates from source outside Nigeria. In the area
of research into multinationals or joint ventures in Nigeria one faces a wall
of official and corporate secrecy. Neither PAN nor VWON publish annual reports
or financial statements of any kind, because they are classed (in spite of the
considerable public capital invested in them) as private companies, and in
Nigeria, private companies are not obliged to make their accounts or any other
aspect of their operations public. Thus, even the most routine aspect of their
operations is hidden from public view. I finished this work without once seeing
the annual report or statement of account of either company – just as some PAN,
VWON and government officials had already predicted. And until I encountered
this data in a confidential source, my only access to this information was
through the consolidated statements of the parent companies.
While on holiday in London in the
summer of 1983, I had the great fortune to use the corporate library of the
London Business School. This is an excellent library for those who want
information on multinational companies. Here, I benefited from the Annual
Reports of Volkswagen AG and Peugeot SA, and from an extensive microfiche
collection of newspaper clippings on both companies. Back in Nigeria, I had
access to a large range of press clippings from the personal collection of Dr.
Hutchful on VWON and PAN dating from 1980. This was supplemented by the press
files or VWON at the Badagry factory, dating from 1974. Mr. Linus Mba, Public
Relations Officer of VWON, made these invaluable press files available to me,
and I thank him sincerely. Mr. Mba sent through the mail, a collection of
papers and brochures on VWON, and this included issues of Volkswagen, the
quarterly staff journal of Volkswagen of Nigeria Limited.
I had interviews with some PAN
officials in Kaduna in October, 1983. During March, 1984, I had interviews in
Lagos with PAN and VWON officials and also with some officials of the Federal
Ministry of Industries. Naturally, these officials cannot be named. I also had
the good fortune to obtain the three-volume report of a group of consultants
engaged by the Federal Ministry of Industries to study the Nigerian motor
industry in 1981. This report has been used in some places in this study but
could not be quoted by title because of its confidentiality.
Finally, Dr. Hutchful lent ma a great
quantity of motoring magazines like car, road and track, motor trend and auto
car. These helped me for the first time to distinguish the front end of a car
from the rear end. No wonder he is always reading those things.
1.3 BACKGROUND OF VOLKSWAGEN AND
PEUGEOT
Volkswagen
of Germany (Volkswagen Werke AG - VAG)*
V.W was the result of a German
Government Agency act set up in 1937 to operate a savings scheme through which
production of a “people’s car” was to be financed. Although an estimated number
of 340,000 people participated, no car was produced until after the Second
World War. The production facilities which were used for military purposes
during the war were largely destroyed. Nevertheless, by late 1940s the
production of Hitler’s famous “people’s car” – the Beetle – began.
No one could have predicted the success
of the VW Beetle with the plant at Wolfsburg in ruins after the war. Henry Ford
rejected it as a gift from the British Military government and the Engineering
concept of Hitler’s “people’s car” was described by the allies as of no
commercial value. Yet 20 years later, in 1965, VW was producing nearly 5000
Beetles per day and Dr. Ferdinand Porch’s design was the world’s largest –
selling single model car. Cumulative production of the Beetle reached 1 million
in 1955 and 10 million in 1965. The transporter van was added in 1950. The
first foreign subsidiaries were set up in South African (1946), Canada (1952),
Brazil (1953) and the United States (1955).
In 1960, 60% of the company’s capital
held in trust by the German Government was sold to the public, while 20% each
remained with the Federal Government and the government of Lower Saxony.
Dividends occurring to these two parties were paid to the V.W foundation.
Based on the success of the Beetle in
Germany and abroad, the company started to expand rapidly. Two more plants were
added and the model line extended through the acquisition of Auto-Union in 1965
and the NSU Company in 1969. These companies merged in 1969, giving VW access
to the upper end of the car market. Co – operation with Porsche and the
production of the V.W Porsche 914 model in 1969 were also aimed at broadening
VW’s customer base. However, the company’s own entrisin the medium – price
segment of the market in the late 1960s (such as the VW 1600) were not very
successful.
According to the London Times of 1 0 May, 1972, “No single company has quite so
perfectly symbolized the phenomenal post war rise of German industry as
Volkswagen”. Yet between 1970 and 1973 this same company was engulfed in a crisis
that threatened to lead to its total collapse. An account of this phase of
crisis is necessary for understanding the VW corporate structure as it exists
today. The most important reasons for the corporate crisis of the early
seventies were:
(a) A series of revaluations of the German
Mark in the early 1970s, which drove up foreign prices for German exports
including VW. Vehicles (particularly in the vital US market where an import
surcharge had also been imposed by Nixon);
(b) Rapid growth in domestic labor costs: labor
costs in Volkswagen German operations escalated rapidly after 1970. Between
1973 and 1982 VAG’s labor bill more than doubled (see table below)
Table I: Total Domestic Labor Costs, VW of Germany 1973 – 82 (in Dm
million)
|
1973
|
1975
|
1977
|
1979
|
1981
|
1982
|
|
5,309
|
5,550
|
6,810
|
9,113
|
11,779
|
12,069
|
Source:
Volkswagen of Germany (VAG) Annual Report
1982, Appendix
A particularly high and rising content
in the labor bill was payment for social security and fringe benefits.
Currently these payments exceed the bill for wages and salaries per se. for
instance in 1982 fringe benefits and social security payments constituted 50.2%
of VAG’s wage bill is noteworthy because it is largely a phenomenon peculiar to
German ‘social democracy’ and represented a trend bitterly opposed by VAG and
other German employers. In most underdeveloped countries where wages are held
down by the state to promote ‘foreign investment’ such expenditures represent a
minor portion of the corporation’s total wage bill and/or can easily be evaded;
(c) Competition from other automobile
manufacturers, Renault and Fiat in the German and European markets, and
especially the Japanese on the US and world markets: In 1977 V.W complained
that revaluation and rising domestic labor costs were adversely affecting its
ability to compete on foreign markets,
and in particular to respond to the “worldwide challenge” from the
Japanese.
The truth is that the company’s
competitiveness was also badly affected by a fourth factor, an absolute model
lineup. The company had adhered strictly to a single model policy based on the
Beetle and its derivatives. It had assumed that the Beetle would indefinitely
form the centerpiece of its corporate strategy. By 1960 the only additions to
the Beetle were the Microbus and the Transporter Van introduced in 1950 and
virtually unchanged since then. None of the models introduced between 1969 and
1970 and adapted from the Beetle – the 1600 variant sedan and coupe and the
411/412 models, were a sales success. The merger with NSU and Auto Union – Audi
in 1969 and 1965 respectively added the VW K70, the Audi 90 and 100 and several
smaller models. The result was a diverse, unwieldy and increasingly out dated
model line with several of the corporate models competing directly against each
other.
These were the factors behind the
sales crash of VW. Beetle sales on major export markets fell 16.2% in 1972. In
the crucial US market sales fell from 569,696 units in 1970 to 522,657 in 1971;
it was estimated (correctly) that by 1976 the Beetle market (already beset by
problems of adaptation to stringent safety regulations) would have disappeared
altogether. The Japanese were the key problem. Whereas in 1965, VW controlled
67% of the US import market and Toyota and Nissan together only 4%, by 1972 the
two Japanese companies had 30.7% of this market to VW’s 35.7% even in the midst
of the looming disaster, company officials insisted that the Beetle would not
be displaced, that “the Beetle will keep on and on”, words that we shall hear
again under similar circumstances in Nigeria a decade later.
Net profit fell 42.4% to DM 190
million in 1970, and dwindled to virtually nothing in the following two years,
for the first time in the following two years. For the first time in the
company’s history, dividend payments were suspended. This in turn sparked a
corporate crisis in which VAG went through three Managing Directors in three
years. As the Financial Times observed at the height of VW’s crisis,
“seldom has a major company’s fall from grace been so dramatic”.
This background is crucial for
understanding VW’s entry into the Nigerian market in 1972. V.W’s response to the
corporate crisis took three forms:
1.
Establishment of local production
facilities abroad, particularly in markets not previously penetrated by the
company. Between 1971 and 1973, apart from Nigeria, VW contemplated or
succeeded in obtaining contracts for Assembly plants in Algeria, Yugoslovia,
Romania, Zambia, Greece and the US and was even said to be “angling to build a
car factory in China”. As one analyst correctly commented at the opening of the
Nigerian Assembly plant in 1975, the plant was merely “the latest in the chain
of assembly plants which VW Germany has established in all parts of the world”.
2.
Rationalization of production on a
world scale: under this policy, VW initiated a world corporate division of
labor. This involved:
i.
The transfer from the parent company
in Germany to subsidiaries abroad (mainly in third world countries) of certain
production functions and
ii.
The allocation of responsibility for
production of specific inputs to individual subsidiaries. This was the system
christened by VW as “Group Interlinked Production”. Under this system, VW do
Brazil, the Brazilian subsidiary manufactured and exported engines and gear
boxes to other V.W subsidiaries ad well as to the parent company, and supplied
CKD parts to assembly plants in Nigeria, South Africa etc. on the other hand
V.W of Mexico assembled Beetles for export to European markets, produced parts
for V.W of America and manufactured engines for the North and Central American
markets. The increasing transfer of production functions to third world
facilities was stimulated by VW’s experiences with its Brazilian subsidiary
whose profits almost exclusively kept the German parent afloat during the
critical years. The result was the increasing fragmentation of production on a
world basis and re-assembly within the corporate structure of the company,
regardless of geographical or national boundaries. This fragmentation of
production allowed VW to take advantage of local cost factors and most
favorable tax systems, to practice transfer pricing, and to avoid local control
and the possibility of nationalization. These considerations are fundamental to
MNCs.
3.
Finally, the evolution of a new and
rigorous model policy, emphasizing advanced design and technology and a high
degree of inter-changeability of parts. The new models broke absolutely with
VW’s traditional design philosophy, incorporating water-cooled front engines
and front – wheel drive. VW’s Audi subsidiary was critical to this recovery
strategy. Audi designed the entire range of efficient new engines that appeared
in modified form in the new V.W models and much also be credited to the
subsidiary, particularly in the area of front-wheel drive design in which the
company was a world pioneer.
The Passat, the first of the new generation,
VW’s was derived from the Audi 80. The difference between the Audi 80 and the
Passat being that while the Audi 80 was a three box design, the Passat had a
fast-back, after the Passat came to performance coupe called the Sirocco which
was also very successful. But the car which completely transformed VW’s future
was the Golf, which appeared in 1974 and was followed, was the Golf GTI. The
Golf was so phenomenally successful that it was Europe’s best selling single
car for seven years continuously and with the Toyota Corolla the world’s
bestselling model for almost a decade. The Golf popularized the ‘hatch back’
design and so successful was this design that other car manufactures had to
start producing a spate of similar cars in order to prevent themselves from
being wiped out in the European small car market.
After the Golf came the Golf GTI; a
high performance fuel-injected model, and the Golf diesel. The Golf diesel
revolutionized the concept of a small diesel car and was so successful that
overnight VW overtook Mercedes and Peugeot, the traditional manufacturers of
diesel cars, as the leading manufacturer in this area. Like the original Golf,
both the GTI and the diesel have spawned a large number of imitations from the
competition.
Thus in the brief period from 1972 to
1975, VW of Germany (VAG) and (in particular its Audi subsidiary) was
transformed from a staid and conservative company into a technology leader in
the automobiles industry. At present VAG’s model lineup is as follows:
Polo/Derby, Golf (GTI, diesel, cabriolet, and sedan) Jetta, Sirocco Passat
(hatch back, Station Wagon)/Santana. In addition Audi produces the Audi 100
series, the Audi 80 and 50 and the specialty Audi Quattro. Audi has become
particularly identified with technological leadership and dynamism. The company
developed the world first 5 cylinder petrol engine (in the Audi 100, the
Quattro as well as versions of the 80 and Passat), the world first permanent
four wheels drive car (the Quattro) and currently produces the world most
aerodynamic sedan (the new 100) and fastest four door saloon (the 200 turbo).
Also, Audi’s engines are remarkable for their efficiency and economy. Yet, as
we shall see, the model policy pursued by VW in their Nigerian operations could
not have been more starkly different than the one described here.
As a result of the unusual successes
of its policies in the 1970s, today V.W is more than ever a giant
multinational. As a multinational, the company is characterized by (a)
concentration of capital (b) internationalization of its operations and (c)
diversification. In 1982, the company controlled total assets of DM 25,893
million. Total assets had doubled in less than a decade, from DM 12,996 million
in 1973. Capital investment also tripled between 1973 and 1981 (from DM
1556,000 million in 1973 to DM 4851 million in 1981) as a result of the
financial success of the company. As is usual with multinationals, the bulk of
the capital investment (DM 3,089 million) was concentrated in Germany itself.
73% of these assets were held in Europe (including Germany), 15% in Latin
America, 10% in North America, and another 10% in Africa (1978 fig.).
The VW Group, (of which VAG is the parent company) includes 69
subsidiaries and associated companies in eighteen countries including Germany.
The principal subsidiaries are in Brazil, Argentina, Belgium, Mexico,
Netherlands, Nigeria, South Africa, and Yugoslavia. Both production and sales
reflect the international character of the company’s operations, with a high
dependence on the foreign market. Total production in 1981 was 2,246,000 units,
63% of which was produced in Germany and 37% in plants in nine countries
abroad. VW do Brazil, the largest subsidiary, accounted for 303,020 units (of
which 29% were exported), and Mexico for 138,-000. Total net sales (1981)
amounted to DM 37,878 million (more than double the 1973 sales of DM 16,982 m.)
of which only DM 12,064 million was made from foreign operations. From 1973 to
1982 not less than 64% of VAG’s total sales were accounted for by exports.
Despite the doubling of the company’s
revenues, total work force increased only slightly from 215,000 in 1973 to
247,000 in 1981 (of which 160,000 were in Germany and 87,000 in foreign
subsidiaries).
This
is summarized as follows:
|
|
1973
|
1974
|
76
|
78
|
1980
|
1981
|
|
Total
Production*
|
NA
|
2,068
|
2,106
|
2,385
|
2,574
|
2,246
|
|
Domestic
|
NA
|
1,359
|
1,436
|
1,569(66%)
|
11,499 (58%)
|
1,410(68%)
|
|
Abroad
|
NA
|
709
|
730
|
816 (34%)
|
1,075 (42%)
|
836 (37%)
|
|
Total Net
Sales*
|
16,982
|
NA
|
NA
|
28,724
|
33,288
|
37,878
|
|
Domestic
|
5,364
|
5,161
|
8,068
|
11,229
|
11,850
|
12,064
|
|
Abroad
|
11,618
|
11,805
|
13,355
|
15495
|
21,438
|
25,814
|
|
Total
Capital Investment
|
1,556
|
1,902
|
1,141
|
1,990
|
4,279
|
4,851
|
|
Domestic
|
928
|
1,313
|
657
|
1,559
|
3,163
|
3,089
|
|
Abroad
|
628
|
589
|
484
|
431
|
1,116
|
1,762
|
Table II: VAG – Total Production, Sales and Capital Investment 1973 – 1981
SOURCE:
VAG
Annual Report, 1982.
* In thousands of Units
+ Sales and Investments in DM
Million
Table
III:
Total
Work Force, VAG 1973 – 1981
|
Total
|
1973
|
1974
|
1976
|
1978
|
1980
|
1981
|
|
215
|
204
|
183
|
207
|
258
|
247
|
|
|
Domestic
|
161
|
142
|
124
|
139
|
159
|
160
|
|
Abroad
|
54
|
62
|
59
|
68
|
99
|
87
|
SOURCE:
As
in Table II
Group Automobiles
Peugeot*
Peugeot operations started as far back
as early 1890s with the production of bicycles and tricycles in Montbeliard as
family business and later expanded to include automobile production. The
company was incorporated in 1896. Cumulative production reached 1 million units
in 1952, 5 million in 1969 and 10 million in 1976.
After the Second World War, Peugeot began
to expand outside France. This was largely in response to import restrictions.
The only large production facility was set up in Argentimbut a large number of assembly operations, with or
without Peugeot participation were started in Africa, South East Asia,
Australia, New Zealand, Spain and Portugal.
In 1976, Peugeot merged with Citroen and
in 1978 the company acquired Chrysler’s European operations, including plants
in France, Spain and the U.K as well as their dealer networks and financial subsidiaries.
The Chrysler assets and their cars were renamed TALBOT, and the parent company
PSA Peugeot – Citroen with this acquisition of Chrysler’s European operation in
1978 Peugeot – Citroen became the largest European car manufacturer and the
fourth largest in the world. Spain, UK, Argentina and Nigeria account for the
groups largest manufacturing facilities outside France. Peugeot – Citroen is
also integrated backward into steel and parts production and also produces
bicycles, mopeds and tools.
PSA Peugeot – Citroen is a holding
company. The Automobile Division consists of the operations of Peugeot, Citroen
and Talbot run by three incorporated subsidiaries. ‘Group Automobiles Peugeot’
is the one responsible for production of Peugeot vehicles. Its foreign
operations are run by French subsidiaries, mainly by Automobiles Peugeot and
Automobile Citroen.
In 1980, the group – Peugeot, Citroen
and Talbot – produced 1.65 million cars in France, Peugeot accounted for 22% of
French output, Citroen for 10% and Talbot for 17% giving the group a market
share of 49% in France (including imports). Peugeot’s minority owned plants are
located in Nigeria, Malaysia, and Madagascar; majority owned companies assemble
Peugeots in Vietnam and South Africa. Peugeot assembly plants without equity
participation operate in Ireland, Portugal, Australia, New Zealand, Indonesia,
Thailand, Ghana, Kenya, Tunisia, Uruguay and Iran.
The major shareholders in PSA are
Peugeot – Citroen 37%; Chrysler corps, 15%; Michelin 9%. The rest is shared
between Societe Forciere Financiere et de participations, Financieres et Ets.
Although
Peugeot did not run through an acute crisis on the dimensions of VW, like VW
Peugeot had to contend with increasingly severe competition in the late sixties
and early seventies not only on the French and European markets from its
traditional rivals (Renault Ford etc.) but also on the international market,
(including the crucial African market); from the Japanese. Faced with sluggish
growth on the French and European markets, Peugeot decided that the best avenue
to growth was to “expand abroad”. A new department was set up in Peugeot, the
department of industrial participations, to negotiate industrial undertakings
and joint – ventures abroad. It was this department that negotiated and signed
the Nigerian agreement. Since the acquisition of Talbot, PSA Peugeot – Citroen
has run into reverses on the on the European and American markets, owing
largely to the lack of profitability of eliminated both in France and abrode as
a result of losses and plants have been closed in Belgium, the UK, and
Argentina. These losses make the operation of the Peugeot subsidiary in Nigeria
all the more important to the profitability of the parent and holding
companies.
Like VW, Groupe Automobile Peugeot as a
MNG is characterized by a similar concentration of capital and internationalization
of operations. Peugeot controlled total assets of Fr. 56,827 million in 1982 of
which 23% was accounted for by outside operations. As at 1980, the Groupe had
56 subsidiaries, 27 in France and 29 abroad in 12 countries. There were also eleven
associated companies, six in France and five abroad including Nigeria (PAN).
The total workforce in 1978 was 190,200 – 87% domestic and 13% abroad. Out of
total net sales in 1978 and 1980 foreign subsidiaries accounted for 50% and 55%
respectively. This is shown by the following table:
Table IV:
Groupe
Automobiles Peugeot
Total
Assets and Net Sales 1977 – 1981
|
Total
Assets
Held
Abroad (%)
|
1981
|
1980
|
1979
|
1978
|
1977
|
|
56,827
23%
|
53,011
22%
|
49,055
24%
|
36,287
NA
|
29,191
NA
|
|
|
Total
Net Sales (excl. Tax)
%
Foreign Subsidiaries (incl. Export)
Export
|
72,389
45%
40%
|
71,103
55%
36%
|
71,034
NA
37%
|
47,810
50%
NA
|
4,885
NA
NA
|
Source: From
John Stopford, The World Directory of Multinational Enterprises. Pg. 850.
Peugeot as is characteristics of
multinationals export a large share of its production – 46.2% in 1976 rising to
51.1% in 1979. Unlike VW, Africa always constituted a major market for Peugeot
exports, being the largest after Europe and taking over 100,000 units in
Peugeot cars yearly. African alone accounted for 28.5% of its total sales in
1976, rising to 42.4% in 1980. In the same period the European market
(including France) accounted for 61% of the company’s total sales in 1976 but
this figure declined to 47.4% in 1980. Between 1979 and 1980 there was a major
fall in Peugeot’s European market from 60.1% to 47% and an equally dramatic
improvement in the African market from 29.9% to 42.4%. see table below
Table V: Peugeot Export Markets 1976 – 1980
|
Export
(% of Total Prod)
|
1976
|
1977
|
1978
|
1979
|
1980
|
|
40.2
|
48.3
|
50.1
|
51.1
|
N.
A. *
|
|
|
Africa
(% of Total Sales)
|
28.5
|
31.3
|
28.7
|
29.9
|
42.4
|
|
Europe
(Including France)
|
61.1
|
58.2
|
N.
A. *
|
60.1
|
47.4
|
* N.
A. – Not Available
Source: PSA, Annual Reports, 1976 – 1980
COMMENCEMENT OF
NIGERIAN OPERATIONS
In 1969, the Federal
Government invited several automobile companies to bid for the establishment of
two passenger car assembly plants in Nigeria. Discussions were held with thirteen
companies and agreement was signed with Peugeot and VW. The agreement between
Automobile Peugeot (France) and the Federal Government of Nigeria was signed in
August, 1972. The share capital of the company at the time was N5 million. Of
this, the Federal Government holds 35%, former North – Central State Government
(now Kaduna State) 10%, the Nigerian Industrial Development Bank (NIDB) 5%,
Nigerian distributors 10%, and Groupe Automobiles Peugeot 40%.
In the case of VWON, the agreement was
signed in September, 1972 between Volkswagen of Germany and the Nigerian
Government. VW of Western Germany was to set up a motor car assembly plant in
Nigeria. The equity capital was distributed as follows:
V.
W. of Germany
- 40%
German
Financial Institutions
- 11%
Federal
Government of Nigeria
- 35%
Nigerian
Distributors
- 10%
Lagos
State Government
- 4%
Both Peugeot Automobiles Nigeria Limited
(PAN) and Volkswagen of Nigeria Limited (VWON) commenced production in 1975
from CKD parts. PAN started with an initial production of 120 cars a day and
VWON 60 cars a day. This rose to 200 cars daily for PAN and 140 cars daily for
VWON. Since then, production for the two companies has developed as follows
(data up to 1981 only):
PAN
PRODUCTION, (1976 - 1981)
1976 15,000 (Units)
1977 23,000
1978 31,000
1979 35,000
1980 48,437
1981 58,889
SOURCE: PAN
Of
the 1981 production, 17.5% were 504 GRS, 41.67% were 504 GR with air
conditioners, 20.5% were station wagons and 505 models constituted the rest
(20.33%).
For
VWON production has developed as follows:
|
YEARS
|
BEETLE
|
PASSAT
|
AUDI
|
IGALA
|
TOTAL
|
|
1975
1975
1977
1978
1979
1980
1981
|
5165
7873
15821
18455
17238
16338
23812
|
512
2632
4119
2536
552
1151
4429
|
_
900
985
1302
454
1051
1092
|
_
4704
2407
1404
1361
44
_
|
5677
16109
23334
23818
19605
18584
29333
|
SOURCE: VWON.
PAN’s local production involved the 304
and 404 models (both dropped), the 504 (saloon and station wagon), and the 505
SR and GL. In addition, the company
imports the 305 (SR). VWON has produced locally from Brazilian and German kits
the Beetle 1300 and 1500, the Igala (known as the ‘Brazila’ in Brazil), the
Passat, and the Audi 100. And (since the end of 1983), the Santana, the Golf
and the Jetta, in addition, the company imported briefly, the ‘Rio’ and the
‘SP2’ ports Cars FBU (fully built up) from Brazil. Local production of the
Beetle 1300, the Igala, and the Audi has been dropped.
Both PAN and VWON also produce and/or
import a line of commercial vehicles. These are the 404 and 504 pick-ups in the
case of PAN and the VW Kombi, the Transporter and the LT35 in the case of VWON.
In 1979, PAN controlled 56.63% of the passenger car market and 19.87% of the
commercial vehicle market in Nigeria and VWON 31.04% and 14.02% of these
markets respectively. By 1982, PAN’s market shares had risen to 68.85% of the
passenger cars market and 14.12% of the commercial vehicle market, but VWON’s
market share had declined to 19.91% and 4.23% respectively.
PAN has a current dealership network of
189 principal distributors and between 73 and 76 ‘attached distributors’ (in
another words subsidiary distributor’s dependent on the principal
distributors). The 189 principal distributors are divided into three regions of
PAN thus – West 61, East 65, North 63. VWON on the other hand has a total of
approximately 66 dealers. In spite of the large number of PAN dealers SCOA, the
French commercial firm closely associated with Peugeot, controls 27% of PAN’s
production and UTC and Rutam 17% and 10% share of investment in PAN allocated
to Nigerian distributors, in the following order SCOA 5%, UTC 3%, and Rutam 2%.
The numerous Nigerian distributors have no direct state in the company.
At the time of their establishment it
was anticipated that the two vehicle assembly plants would lead to the
development of an integrated national motor industry, provide employment,
transfer automotive technology and conserve foreign exchange. These
expectations were made clear at the opening of the VW plant in Lagos. According
to the Federal Commissioner for Industry “for every employment provided in the
assembly project, ten additional employments should be created in manufacturing
and service industries”. And according to General Gowon, the head of state, the
VW plant was the symbol of “an industrial revolution involving the transfer of
technology as a result of which Nigerians would acquire new skills, new
insights and new perspectives about the requirements of economic transformation”.
From local assembly cheaper cars would also result.
The
editorial column of “The People” also had this to say:
“The selecting of VW as one of the two brands of
vehicles to be the soundest and most sensible policies yet introduced in our
quest for industrial development. If we can place emphasis on the local
manufacture of medium sized cars such as the VW, we can succeed in the course
of time to mass produce cars cheap enough to be within reach of the average
Nigerian”.
According
to the editorial “the establishment of the plant makes Nigeria the only
automobile producing country in Black Africa”. Have these expectations been
fulfilled? In order to answer the question let us see how the subsidiaries of
the two multinational automobile companies have operated in Nigeria.
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