MULTINATIONAL CORPORATIONS AND NIGERIAN INDUSTRIALIZATION: PEUGEOT AND VOLKSWAGEN





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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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