Filière économie d’entreprise
ASSESSMENT OF INTERNATIONAL TRADE OPPORTUNITIES IN THE WEST
AFRICAN REGION FOR THE DEVELOPMENT OF A NEW FAST MOVING CONSUMER GOODS BUSINESS VENTURE
www.hevs.ch
Diplôme 2005 / 2006
Etudiant : Nicolas Crettol
Professeur : Valérie Barbey
TABLE OF CONTENT
LIST OF ABBREVIATIONS AND ACRONYMS...5
FOREWORD...7
ACKNOWLEDGEMENTS...8
PART I ECONOMIC OUTLOOK IN WEST AFRICA...9
INTERNATIONAL ENVIRONMENT...10
SHORT ECONOMIC OUTLOOK OF THE AFRICAN CONTINENT...10
AFRICAN TRADE POLICY...11
WEST AFRICAN SITUATION...11
ECONOMIC OUTLOOK...12
TRADE AND MONETARY POLICY...13
COMPARISON WITH THE EUROPEAN UNION...14
AGREEMENTS...16
CEN-SAD (Community of Sahel-Saharan States)...16
MRU (Mano River Union)...17
AMU (Arab Maghreb Union)...17
ECOWAS (Economic Community of West African States)...18
WAEMU (West African Economic and Monetary Union)...19
WAMZ (West African Monetary Zone)...20
PART II MODEL OF LOCALIZATION...23
CONTEXT...24
METHODOLOGY...25
PHASE I CONCEPTUAL APPROACH...26
STRATEGY OF LOCALIZATION...27
THE PROCESS OF LOCALIZATION...28
CONCLUSION...29
PHASE II EMPIRICAL APPROACH...31
FACTORS OF LOCALIZATION...32
DETERMINANTS...34
FIRST CASE STUDY...34
SECOND CASE STUDY...36
THIRD CASE STUDY...38
ERRORS OF LOCALIZATION...40
PHASE III MODEL...41
PRESENTATION...42
PROCESS I...44
THE JTI LOCALIZATION PROCESS...44
MOST IMPORTANT DETERMINANTS TO JTI...45
CATEGORIES OF DETERMINING CRITERIA...49
PROCESS II...52
SPECIFICITIES OF THE SUB-REGION...52
CASE STUDIES...63
ERRORS OF LOCALIZATION...69
FINAL LIST...71
CONCLUDING COMMENTS...72
PROCESS III...73
BENCHMARKING...73
NESTLE...74
PART III ANALYSIS OF THE COUNTRIES OF WEST AFRICA...81
CRITERIA OF THE 16 COUNTRIES...82
THE MOST SUITABLE LOCATIONS...99
MAIN CONCLUSION...102
OBJECTIVES...102
CONTRIBUTIONS...103
LIMITS...104
DIFFICULTIES...105
UNFOLDING...106
CERTIFICATION...107
REFERENCES...108
BIBLIOGRAPHY...108
INTERNET SITES...110
APPENDIX I...113
TABLES...113
FIGURES...115
GRAPHS...122
APPENDIX II...126
SURVEY I...126
SURVEY II...130
LIST OF ABBREVIATIONS AND ACRONYMS
ACP : Africa, Caribbean, and Pacific AMU : Arab Maghreb Union
BCEAO : Banque Centrale des Etats de l’Afrique de l’Ouest CAEMC : Central African Economic and Monetary Community
CBWAS : Central bank of the West African States (Central Bank of WAEMU) CEDEAO : Communauté Économique des États de l'Afrique de l'Ouest
CEN-SAD : Community of Sahel-Saharan States
CEMAC : Communauté Économique et Monétaire de l'Afrique Centrale CET : Common External Tariff
CFA : Coopération Financière d'Afrique centrale COMESA : Marché Commun d’Afrique Orientale et australe EBID : ECOWAS Bank for Investment and Development ECOWAS : Economic Community of West African States EMCP : ECOWAS Monetary Co-operation Program
EU : European Union
FCD : Fund for Cooperation and Development FDI : Foreign Direct Investments
FOB : Free On Board
FMCG : Fast Moving Consumer Goods FTA : Free Trade Area
GDP : Gross Domestic Product IMF : International Monetary Fund
ISIC : International Standard Industry Classification JTI : Japan Tobacco International
MNF : Multinational Firm
MOWCA : Maritime Organization for West and Central Africa MRU : Mano River Union
NTIC : Technologies for Information and Communication OCA : Optimum currency area
ODA : Official Development Assistance
OECD : Organization for Economic Cooperation and Development PPP : Purchasing Power Parity
SADC : Southern African Development Community
SPP : Survey on the Perception of Well-being and Poverty SSA : Sub-Saharan Africa
STAP : NEPAD Infrastructure Short-Term Action Plan
UEMOA : Union Economique et Monétaire Ouest Africaine (WAEMU) UMOA : Union Monétaire Ouest Africaine
UNCTAD : United Nations Conference on Trade and Development UNECA : United Nations Economic Commission for Africa
UNSTATS : United Nations Statistics Division
WAEMU : West African Economic and Monetary Union WAMI : West African Monetary Institute
WAMZ : West African Monetary Zone
FOREWORD
People always sought to obtain goods. At this time, they had to practice exchange which was the only existing form of trade. When money arrived, they started to buy and to sell goods and services. Gradually, thanks to this trade which stimulated the development and the economic growth between the countries, people started to turn themselves to international exchanges in order to get goods which did not exist in their area. They started to import goods from other countries, which they financed thanks to exports.
People started to benefit from these exchanges: consumers had at their disposal more diversified lines of goods accompanied by competitive prices and producers had access to a wider market. These transactions started to become so extensive that governments laid down rules to control this international trade and to protect their market.
Governments set up various measures such as tariff barriers and subsidies. Today there still exists great disparities at this level between these various areas of the world. Each government imposes its own measures of protectionism.
In order to well understand the issue, I will present in this document various elements which could direct a multinational firm of the sector of the FMCG1 towards a future establishment in the area of West Africa. The edition of this report will be in three parts.
Firstly, a summary of the current situation in West Africa and its various policies and trade agreements within this sub-region. Secondly, the data relating to my research on the existing literature concerning the localization of companies and results of studies regarding key factors of future company establishments. To conclude this part I will present a localization model I built using collected data throughout this document. My model will present a final criteria list in order to help companies for their future West African investments. Finally, a presentation of the sixteen African States group according to the criteria list I made which will determine the most favourable countries for any current FMGC business development.
During my research I benefited from the support of representatives of Japan Tobacco International which is “the world's third largest international tobacco company, manufacturing internationally recognized cigarette brands including Camel, Mild Seven, Salem and Winston. Products are sold in more than 120 countries. Established in 1999 as an operating division of the JT Group, JTI is based in Geneva, Switzerland and employs more than 12,000 people in 40 countries”.2
JTI benefits from various experiences in Africa such as contract manufacturing from the Tunisian government, running the former Tanzanian tobacco monopoly or via share of market presence in countries such as Morocco, Nigeria, South Africa, etc.
1 See page following Table of content for a list of abbreviations used in the report 2 http://www.jti.com/english/about_jti/who_we_are.aspx
The goal of this study is to determine with precision in which manner a FMCG selling company will be able to penetrate the West African markets and precisely in which country or in which area returns on investments will be the most important. This trade will be done either by the means of imports, or by the construction of factories directly in these countries.
ACKNOWLEDGEMENTS
It is a pleasure to thank the many people who have made my graduate education possible.
Most importantly, I would like to express my deepest gratitude towards Japan Tobacco International representatives namely Mr. Jean-Luc Perréard, Corporate Compliance Vice President, Mr. François Fidanza, Business Development Director and Mr. Gabriel Bonnet, Business Development Manager for their help, guidance, encouragement and patience throughout the duration of this project. They were actively involved in the work and I would like to say a big THANK YOU to those who have contributed their time and effort in assisting me during the completion of this work.
I would like to express my sincere appreciation to my professor and supervisor, Mrs.
Valérie Barbey who has spent much time with me and found just the right way in guiding me to create my own ideas. Her dedication and care has been greatly appreciated.
I would also like to thank all the rest of the academic and support staff of the HEVs and express to all of them my gratitude for making this study possible.
I am also very grateful towards Mr. Alexandre J. Cantacuzène, Nestlé S.A Senior Vice- President of Asia, Africa and Oceania who agreed to be interviewed by me for a benchmarking study and for his help despite the little time he had available.
Is that everyone?
Nicolas Crettol
Geneva, December 2006
PART I ECONOMIC OUTLOOK IN WEST AFRICA
INTERNATIONAL ENVIRONMENT
SHORT ECONOMIC OUTLOOK OF THE AFRICAN CONTINENT
3Africa is made up of 53 very different countries. For instance, only 10 have a population of more than 30 million, while only 4 have a population of 60 million and above. Among this diversity, four countries are representing over 57.8% GDP of the entire continent. In 2005, South Africa, Egypt, Algeria and Nigeria had a total GDP of US$358 billion. In comparison, the total GDP of Africa was US$619.45 billion for this period. Apart from these four large economies, many countries have a GDP of less than US$1 billion and per capita income of less than US$1000.
Despite these facts, Africa’s economic growth has never been so strong. If between 1987 and 1997 the continent’s real GDP growth only averaged 2.2%, currently the rate improved from 3.6% in 2002 to 5.0% in 2005.
African trade is dominated by exports of primary commodities and raw materials. “In 2004, over 89.0 % of Africa’s foreign exchange earnings were derived from primary commodities, including crude petroleum”.
Until recently the economic performance of the African countries has been rather low and disappointing with a poor average of 3.8% between 1997 and 2005. The UNCTAD forecasts better economic and social conditions for this continent in the future if Member States adopt and implement cooperation and regionalism strategies. The trend will be for them to follow the processes to become fully integrated into the global economy. The theory has illustrated integration as a more and more efficient factor for higher growths.
The result is a better access to resource allocation, greater competition developing the market, improved access to foreign capital, etc. In Africa, trade and investment is increasing more rapidly than in the developed countries.
3 O.J.Nnanna, Economic and monetary integration in Africa, G24 meeting, Singapore, September 14, 2006, p.3
AFRICAN TRADE POLICY
4Many countries in Africa have reflected over the perspective of wide-ranging trade policy reforms or have already implemented them. In this context, this development strategy is generally oriented on trade liberalization which has been treated by a combination of the following:
import liberalization
a move towards neutrality in the structure of relative prices
There are many definitions concerning commercial liberalization. Krueger and Rajapatirana (1999) characterize the latter as “any trade policy reform for a particular country which reduces the bias of its trade regime against exports, substitutes price measures (such as tariffs) for quantitative restrictions, and otherwise reduces the degree of government control over transactions between domestic residents and foreigners”.
WEST AFRICAN SITUATION
5West Africa is a coastal and sub-Saharan zone located in the westernmost region of the African continent. Geopolitically the region includes 16 countries: Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo.
The West African territory occupies approximately one-fifth of Africa. A vast majority of land and plains lying less than 300 meters above sea level. Isolated high points and mountains exist in numerous countries along the southern shore of the region.
The northern section of the sub-region is composed of semi-arid fields known as Sahel which is a transitional zone between the Sahara desert and the savannahs of the western Sudan. The rest of the land is equatorial forest and forms a range between 160 km to 240 km in width.
4 Ademola Oyejide, African trade policy in the context of national development strategies, ECA’s Conference of African Ministers of Finance, Kampala 22 May 2004
http://en.wikipedia.org/wiki/West_Africa
ECONOMIC OUTLOOK
The following figure shows an estimated economic growth in the West African zone.
During the year 2003 the GDP growth was at about 7.2% compared to 3.8% in 2004.
This growth deceleration was due (according to the data coming from the literature, on the supply side), to the poorer performance of the primary and services sectors, and on the demand side, to the slowdown of consumption. Indeed, the zone is dependent on agriculture which is itself dependent on climate. A vast country, Nigeria and its rapid developments in the oil industry has great influence and has directly affected the economy of the entire sub-region as explains the following quotation for the year 2004:
“Buoyancy was noted in the transport, tourism and telecommunications sectors, and a relative stability in macroeconomic management in several countries. However, unfavorable market conditions, caused by the low prices of major raw materials and the impact of the socio-economic environment, led to poor performance in several States”.6
Real GDP growth in West Africa:
6 Emile Ahohe, Economic and social conditions in West Africa in 2004 in 2005, p.4
TRADE AND MONETARY POLICY
Harmonization of payments, habits, banking laws of operations and currencies is already in progress in West Africa within the framework of the set up of the free zone through the Monetary Union. Some countries of this sub-region have common banks like the CBWAS whose Member States are Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo. To ensure the convertibility of the CFA Franc, the Bank Of France guarantees the money emitted by the BCEAO, in exchange of the monetary reserve of the French Treasury and strict orders on the creation of new money.7
Within West Africa there exist a divergence of countries. Some are oil and raw material exporters and others are greatly dependent on foreign goods and services. Exports in this region rose by 19.4% in 2004 while imports grew by 22.6%.8
In West Africa, we will see that there are custom unions and FTAs. Within the WAEMU the Member States which are Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo currently have simple average import tariffs of 12% within the range of 0-20%. Indeed, WAEMU implemented a CET in the West Africa zone.
Other Member States of ECOWAS have also decided to adopt the same CET as WAEMU. However, such decisions always take a while to be fully implemented. Some have not yet been created. For instance, some countries such as Ghana continued to implement their unilateral import liberalization programs with their own simple average tariffs of 14.6% with a maximum rate remaining as high as 279%.9
7 http://www.buyusa.gov/westafrica/fr/28.html
8 Emile Ahohe, Economic and social conditions in West Africa in 2004 in 2005, p.17
9Ademola Oyejide, African trade policy in the context of national development strategies, ECA’s Conference of African Ministers of Finance, Kampala 22 May 2004
COMPARISON WITH THE EUROPEAN UNION
10“The Western African region is the EU main ACP trading partner, representing around 41% of total EU-ACP trade. Among the top ten ACP trading partners, 5 are from the Western African region: Nigeria (18%), Liberia (5%), Côte d’Ivoire (4%), Senegal (4%), Ghana (4%)”.
Evolution of trade between the EU and ECOWAS:
€ mio 1998 1999 2000 2001 2002
EU Imports 8,264 8,115 11,614 12,183 11,312
EU Exports 10,773 9,726 12,487 13,032 13,313
The EU and West Africa are two exporters of goods. They specialize in relative products. For instance, in 2002, West African exported to the EU oil, cocoa, gas and others items such as wood, aluminium, fish, diamonds and gold. Regarding the EU, exports to the African sub-regions were vehicles, medicine and telecom equipment.
More than 30% of the West African regional exports are destined to the EU and about 100% of these products entered the EU market duty-free. Statistics say that 41 % of the regional imports came from the EU and intra-regional trade is around 10% of total trade.
[Table 1]11
10 COMEXT, EU-Western Africa Trade, Key Facts and Figures 11 See Appendix I for a list of figures
This table shows the EU trade with CEDEAO/ECOWAS in 2002 by CEDEAO/ECOWAS members. Results are presented in 1000€.
AGREEMENTS
In West Africa and the rest of the African continent there is a real wish to harmonize payments, habits, laws, banking operations and currencies within the framework of various economic agreements. There exists in Africa a multitude of institutions making easier the various commercial transactions. States have adopted processes the aim of which is the harmonization of their policies through economic and monetary unions.
Within these unions, the Member States ratified some agreements and installed organs of control such as common banks in the specified areas.
The subject of my study will be referring to the analysis of West African countries in order to establish a new FMCG business venture. I will thus devote the first part of my report to the presentation of each one of these treaties in order to expouned on the current situation and the dynamics in this area.
CEN-SAD (Community of Sahel-Saharan States)
The CEN-SAD is a framework for integration whose aim is the set up of an economic and social unity. Working in cooperation with other regional economic communities it intends to strengthen peace, security and stability within 23 Member States. The following concerning our sub-region are: Benin, Burkina Faso, Côte d'Ivoire, Gambia, Ghana, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.
CEN-SAD was established on February 4th 1998 to achieve the following objectives12:
“Establishment of a comprehensive economic union based on a strategy implemented in accordance with a developmental plan that would be integrated in the national development plans of the member states. It includes investment in the agricultural, industrial, social, cultural and energy fields”.
“Elimination of all obstacles impeding the unity of its member states”.
“Coordination of pedagogical and educational systems at the various educational levels, and in the cultural, scientific and technical fields”.
12 http://www.cen-sad.org/aboutcensad.htm#whatiscensad
MRU (Mano River Union)
The Treaty of MRU, whose name is derived from the Mano River which begins in Guinea and forms a border between Liberia and Sierra Leone, was established in 1973 between Liberia and Sierra Leone. In 1980, Guinea also joined the union. The main objective was the economic cooperation among these countries. “The Union aimed to establish a customs union amongst member states. Targets achieved thus far have been the introduction of a common external tariff and at the intra-union trade level, the liberalization in goods of local origin”.13
At first, this union could not be achieved due to the many civil conflicts persisting in Sierra Leone and Liberia. However, on May 20th 2004 the Union was reactivated.
AMU (Arab Maghreb Union)
The AMU was founded on February 17th 1989 as part of 5 Member State cooperation.
Mauritania is the only one situated in our sub-region. The constitutive Treaty laid down the following objectives14 :
Defence of human rights
Freedom of movement of the people, of the services, of goods and capital
Adoption of a common policy whose aim is to ensure the industrial, agricultural, commercial and social development
Institution of a free trade area with the dismantling of all tariff and non-tariff obstacles to trade
Institution of a customs unified space with the adoption of a common external tariff
ECOWAS (Economic Community of West African States)
1513 http://www.mbendi.co.za/orgs/cfbt.htm 14 http://www.maghrebarabe.org/fr/index.htm
15 O.J.Nnanna, Economic and monetary integration in Africa, G24 meeting, Singapore, September 14, 2006, p.13
The ECOWAS is currently formed by a group of 15 countries. In 2002, Mauritania left the organization. The treaty was signed on May 28th 1975 in Lagos by 16 countries and came into force on June 10th 1975 when it was ratified by seven countries.
The aim of the Community is “to promote co-operation and development in all fields of economic activity, particularly in the field of industry, transport telecommunications, energy, agriculture, natural resources, commerce, monetary and financial questions and in all social and cultural matters for the purpose of raising the standard of living of its peoples, of increasing and maintaining economic stability, of fostering closer relations among its members and of contributing to the progress and development of the African Continent”.
The aim was the creation of a regional market of millions of consumers, within which people and goods can enjoy unimpeded movement between Member States. Indeed, ECOWAS travel certificate should ultimately be transformed into a common international passport allowing free movement of persons due to the development of joint transport, communication, energy and other infrastructural facilities.
The community wished to harmonise its trade liberalisation schemes with a CET and with efficient economic and fiscal policies with the set of the following measures:
Elimination of charges and customs duties
Abolition of restrictions on trade among the Member States
Establishment of a FCD
This adopted Treaty shows a “classical model of economic integration, envisaging the establishment of an economic community through a gradual process of tariff elimination leading to the establishment of a free trade area, a customs union and a common market.”
Results coming from these actions unfortunately lead to a formal absence of any progress within the community. ECOWAS countries then proposed a second monetary zone, the WAEMU, in addition to the existing CFA16 franc zone in West Africa.
WAEMU (West African Economic and Monetary Union)
The WAEMU is formerly known as the WAMU or UMOA. The union was founded on January 10th 1994 due to the devaluation of the common currency, the CFA Franc17.
16 CFA stands for “Communauté financière africaine” when it refers to the West African franc zone 17 http://www.dfa.gov.za/foreign/Multilateral/africa/waemu.htm
The treaty was ratified by eight countries: Benin, Burkina Faso, Côte d'Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo.
Within the implementation of a macroeconomic convergence WAEMU adopted with its five main objectives18 several mechanisms leading to a customs union, a CET and a harmonized indirect taxation regulation. These objectives are:
“To increase the economic and financial competitivity of its Member States in the context of an open, competitive market and a rationalized, coherent, judicial environment”.
“To ensure the convergence of macroeconomic performance and policy across Member States, with the institution of a multilateral control procedure”.
“To create a common market for the Member States based on the free flow of people, goods, services and capital, the right of individuals to set up businesses within the area, a common external customs tariff and a common trade policy”.
“To promote the coordination of national sectoral policy and implementation in the areas of agriculture, environment, transport, infrastructure, telecommunications, human resources, energy, industry, mining and crafts”.
“To harmonize legislation across Member States, particularly the fiscal system”.
http://www.state.gov/p/af/rls/fs/15202.htm
WAMZ (West African Monetary Zone)
The WAMZ formed in 2000 is formed by a group of 5 countries, Gambia, Ghana, Guinea, Nigeria and Sierra Leone whose plan is to introduce a common currency, the Eco by the year 2009. This currency, being prepared by the West African Monetary Institute based in Accra, Ghana, has to rival the CFA franc in establishing a strong stable exchange rate pegged to the euro and guaranteed by the French Treasury19. An eventual goal is for the CFA franc and Eco to merge, giving all of West and Central Africa a single stable currency under the control of a common central bank.
The Accra Declaration defined action plans and price stability objectives to merge its future Eco zone with the CFA Franc Zone to form a single monetary zone in West Africa.
Within the WAMZ, larger oil producing countries such as Nigeria dominate the market whereas other smaller countries suffer from weak currencies and chronic budget deficits.20
The following diagram shows the distribution of the West African Agreements.
██ ECOWAS ██ WAEMU (West CFA franc)
██ WAMZ Source: http://wikipedia.org
19 http://www.wami-imao.org 20 http://en.wikipedia.org/wiki/WAMZ
The following table shows intra-regional trade within the African Integration Groupings from the 1970 to 2002.
Here is a selection of 1995-2000 averages and indicators for ECOWAS countries excluding Cape Verde, Liberia and Guinea-Bissau.
1 Including grants 2 Percentages
3 Government spending at average income plus diversion/2
4 Diversion estimate for Benin is calculated as the average for the other WAEMU countries
Source : Data- World Bank Africa Database 2002
To conclude this chapter, I summarized the adopted African Treaties in the form of a regional integration matrix:
CEN-SAD ECOWAS WAEMU MRU AMU WAMZ
Benin x x x
Burkina Faso x x x
Cape Verde x
Côte d’Ivoire x x
Gambia x x x
Ghana x x
Guinea x x x
Guinea-Bissau x x
Liberia x x
Mali x x x
Mauritania x
Niger x x x
Nigeria x x x
Senegal x x x
Sierra Leone x x x
Togo x x x
PART II MODEL OF LOCALIZATION
CONTEXT
21Today the sector of retail trade for the FMCG grows more and more in value and is subjected to significant transformations. In urban zones, new types of retail trade such as chain stores, hyper or supermarkets have quickly gown. This development causes an increasing interest from the public, companies and authorities in the developing countries. In particular in West Africa where there is an increasing demand for FMCG.
This high consumer demand for retail goods is the result of their short shelf life because the product deteriorates rapidly. Indeed, a very broad range of products such as meats, fruit and vegetables are highly perishable. Goods such as alcohol, toiletries, soft drinks, etc. also have high turnover rates.
Before continuing, I will quickly show the structure of the FMCG retail market which consists of various retail channels. The ISIC in its third revision classified retail channels into seven categories:22
retail sales in non-specialized stores
other retail sales in non-specialized stores (department stores, etc)
retail sales of food, beverages and tobacco in specialized stores
retail sales of pharmaceutical and medical goods, cosmetic and toilet articles
retail sales via mail order houses
retail sales via stalls and markets
other non-store retail sales
Over the last years, a growing number of economic activities have been becoming more and more footloose which means that the site is less related to the traditional factors of localization. These new factors of localization are not inputs concerning the production process, but external conditions to the company such as employee services, infrastructures, the environment and or the quality of life.
They are able to increase the productivity indirectly and act as external economies. They acquire more influence, especially following the reduction of the average dimension of the firm and the process of externalization of a number of growing activities which were previously managed intra-company.
All this has induced an increasing competition for the attraction of the economic activities. It results in that the economic areas themselves, i.e. the territorial system with its networks of infrastructures, its equipment, the level of the urban functions and the services, the environmental quality, become increasingly important as a factor of production.
21 Alberto Cappato, Enrico Musso, Evaluation des sites potentiels de localisation, Revue région et développement no 11,2000 22 http://unstats.un.org/unsd/cr/family1.asp
The choice of localization is within a framework where the firm attempts to reach an optimal level which can seldom be reached. Any method of decision-making aid must thus consider the problem of the improvement rather than of the optimization of the choice of localization. The search for a satisfactory site implies the preliminary selection of sites as well as the establishment of a level of advantages offered by the sites.
Normally, the process stops as soon as a satisfactory site is identified.
METHODOLOGY
The objective of this section is the analysis of the decision-making process in the choice of localization. I will construct a model which will enable me to define the most efficient method to choose the various criteria of localization. This model will be set up by opposing the relative literature with the data of the decision maker (FMCG companies).
The purpose of this project is to identify a process of decision which will enable me to choose the most adapted zone(s) for the establishment of a production site in West Africa.
This will constitute a strategic exercise due to the multiplicity of factors of localization and to the number of specific operational constraints.
The adopted method consists of three phases. First phase, after a study and demonstration of the written elements, I will show by research the tendencies of the companies active in the sector of FMCG seeking to establish subsidiary companies at the international level.
The objectives of this phase are to understand the complexity of the process of launching a company and to show with this the strategy to be used in its localization.
The second phase will make it possible to determine the localization factors by using econometric analyses from various research made on companies dealing with the FMCG sector.
The objective of this second stage is to show an exhaustive and classified list of determinants according to their importance.
During the third phase, I will draw up a provisional classification of the determining criteria which prevail in various localization researches. I will thereafter define more precisely the importance of the decisional criteria adopted by FMCG companies (JTI, Nestlé, etc.) or I will redefine the content of the headlines given to me. Finally, a comparative study of the motivational factors and the prime location(s) which would draw FMCG companies to be established in an area.
PHASE I CONCEPTUAL APPROACH
STRATEGY OF LOCALIZATION
23For Schmenner (1982), the decision of localization of a new factory by an industrial company must be analyzed as the succession of three dependant decisions answering to the three following questions:
Is it or is it not necessary to increase the output of the company?
Does the addition of this new capacity have to be achieved by the enlarging of the existing sites, the transfer of an existing factory on a larger ground or by the creation of a new factory?
When the last option is chosen, where does this new factory have to be established?
It is in this last concept that all issues concerning the research appear. In other words, we are able to ask this question: why and how does a company choose to establish a new production site in one area rather than another?
To answer this question, this research is based on this central assumption:
The choices of new localizations by the companies answer to an explicit necessity to satisfy the requirements of operation, techniques and economics of the concerned activities while limiting the risks associated with the establishment in a new local environment.
Within the framework of this research and the expression “decision of localization” I will explain the choices a company has in choosing a geographically site. This decision of localization can be registered, either within the framework of the transfer of activity, since one or more sites exist, or within the framework of the creation of a new facility. In addition, the newly created facility can have independent legal status without being a subsidiary company or being jointly held by other companies.
Because of the multiplicity and complexity of the definitions attributed to the localization process it will be necessary to clarify the mechanism of the strategy of localization.
It is not possible to continue further with the localization subject without speaking about the FDI (Foreign Direct Investment) and the MNF (Multinational Firm).
23 Rabiâa Mekki, Stratégie de localisation : revue de la littérature et répercussions sur le commerce international, Séminaire doctoral du GDRI EMMA, Université de Nice, 2004
FDI indicates: a capital to establish a subsidiary company abroad or to take the control of an existing foreign firm. It aims to establish durable economic relations of one unit abroad.24
Many countries currently try to attract foreign investors. Today, there is an increased competition between them because MNFs are increasingly selective in their strategies of establishment. We note two types of policies of attraction of the investments. The first is the policy of the economic situation which is referring to budgetary and tax measurements. The second is the structural policy through industrial and innovational means whose objective is to constitute a strong economical and technological specialization.25
From a conceptual point of view, the strategy of localization indicates a creation or a transfer of an economic activity to a foreign or resident territory.
THE PROCESS OF LOCALIZATION
26This chapter will discuss the decision-making process which leads to localization.
It would be possible to directly start the analysis of this process by the evaluation of the results of the investigations carried out by surveys on the factors of localization used as selection criteria by the decision makers. However, a comprehension of the importance of these factors of localization is necessary in order to unfold the decision-making process.
First I will define who is the decision maker. According to Brossard (1997), in MNFs and similar companies, the team in charge of the decision-making process of localization is composed, in general, of high level directors involved in the production process. This team is placed under the responsibility of a project leader. This shows the political character of the hierarchy in the decision-making process of localization in MNFs.
Now that all these players are defined it remains to see how they proceed: even if there is no single model, research defines general characteristics relating to the decision- making processes of localization by methodical choices of population and data acquisitions.
I consider that the data extracted from research is significant and can be used in my study of the principal elements of the decision-making process.
24 Wladimir Andreff, Les multinationals globales, Edition la découverte, 2003, p.8
25 M. Ajabid, K. Bonnet, D. Da Silva, J. Guernut, D. Jamot, P. Rohart, D. Wang, Les facteurs de localisation des entreprises : De la Silicon Valley à Agadir, Laboratoire Redéploiement Industriel et Innovation, Dunkerke, p.11
26 Bertrand Sergot, Les déterminants des décisions de localisation, Thèse présentée et soutenue publiquement le 6 décembre 2004 en vue de l’obtention du doctorat en sciences à Paris
Documentation relating to localization being very dense with many concepts, I have made a brief condensation of these various elements to show the fundamental characteristics of the decision-making processes. Size of company is the first explanatory factor of the diversity of the decision-making process. If in the companies of small size the hierarchical leader deals with objectives directly, in larger companies specialized departments and services are set up to evaluate the situation.
With regard to the setting of foreign establishments, several areas, and even several countries, will be taken into account by the companies before any localization process.
They will concentrate their research on precise geographical areas.
At the same time companies will consider a number of alternative sites ranging between two and six in number. If enterprises are looking for a predefined site, there will be a distinct preference for geographical areas in which former or current trade activity is present.
The preliminary local presence of the company facilitates the realization of its project thanks to a better knowledge of the site and especially an advantage over potential unknown factors.
Transfers to foreign countries indicate a will to obtain a real economic advantage through the choice of the new site of the transferred activities. This advantage can result from facilitated access to a new market or substantial cost reduction. Obtaining the required economic advantage implies the company modifies in a substantial way the localization of its activities while being established in a new area or a new country.
The localization decisions of companies are conditioned by the preliminary identification of future needs concerning buildings such as the choice between a rental or a purchase infrastructure (offices) or land. The companies will call upon the local governments and the local political powers to identify and conclude their project site.
CONCLUSION
Companies seek the optimal location. They will base that choice on rational criteria and weigh up the risk factor encountered at the time before the launch of new sites.
Consequently they will have to refer to four assumptions27 which relate to theory and which are the basis for all new establishments.
Assumption No1:
27 Bertrand Sergot, Comportements de localisation et performance: Les effets de l’inertie spatiale, du mimétisme et du recours, par les décideurs, à leurs réseaux sociaux sur le fonctionnement de nouveaux sites, XVème Conférence Internationale de Management Stratégique, Annecy / Genève 13-16 Juin 2006
The choice for a new localization of a site located near one or several existing sites of the company decreases the probability that difficulties of operation appear on a site scale after its opening. This assumption strengthens the concept of mimetic behavior.
When a company does not find a satisfactory localization in the geographical area that it is already established in, it can reduce the uncertainty associated with the choice of a new location through the observation and the imitation of the former choices of localization of other companies (competitors).
Assumption No2:
The choice for a new localization of a site located near one or several comparable sites belonging to other companies decreases the probability that difficulties of operation appear on a site scale after its opening.
Assumption No3:
The choice for a new localization of a geographical zone in which one or more concerned top executives of the company have personal relations, decreases the possibility that difficulties of operation appear on a site scale after its opening. The companies are sometimes forced to subordinate their decisions of localization to broader considerations. These considerations can first of all be of a practical nature. The specificity of the buildings of required activity, the need for a physical proximity with a harbour or a source of raw materials essential to its activity are thus likely to force the choice of a new localization in more or less large proportions according to cases.
Assumption No4:
The more the level of constraint weighs on the choice of the new site, the larger the probability will be that operational difficulties appear on that site after its opening.
The criteria for choice of new localizations by companies translates at the same time the consideration, by the decision makers, of the technical and economical constraints and the decision makers’ will to limit the associated risks with the establishment of activities in a new local environment.
The evaluation of the relevance of this approach depends on which criteria we will focus on and the explicit motivations and characteristics of the decision-making process which will result in the final localization.
PHASE II EMPIRICAL APPROACH
FACTORS OF LOCALIZATION
A factor of localization is a phenomenon likely to influence in one way or another, the choice of localization.
Initially it is advisable to clarify the various names used through the existing literature in order to delimit a correct lexical field for this study: Factors, criteria, determinants or variables are terms I will use throughout this document.
From the majority of works devoted to localization, one can define the four following principles28:
One factor cannot alone explain localization; even the presence of a raw material cannot be the only cause of an establishment.
The same factor can exert various influences; the presence of a skilled labour force can attract some companies and push back others.
The choice of localization is the result of a number of factors which can diversely influence the decision to localization from one situation to another.
The final selection of localization is always a question of compromise and options because it is rare to find a perfect site, allowing a perfect establishment for a perfect price.
Leaders thus choose what is most appropriate from what they want and according to what is available.
With reference to what has preceded it is possible to define in more detail the main principles governing localization factors. Several studies29 seem to show that there are four significant variables of the territories at the national level being able to influence the choices.
The first is the geographical situation which can vary according to technical and infrastructural progress or according to conventions and international agreements.
The second is the market which is an essential factor for the choice of a new localization because of its real importance regarding new market conquests. Indeed, without its analysis, the research for an easy access to the market could and would be negative.
28 http://www.geoeco.ulg.ac.be/lmg/locindus/loc_ind.html
29 Thierry Mayer, Jean-Louis Mucchielli, La localisation à l’étranger des entreprises multinationales, économie et statistique N° 326-327,1999
The third is comparative advantages. For any trade activity transfers, companies seek to minimize the production costs by the search of low wages, tax and financial advantages and, in general, for any element that will reduce costs. It is an important factor of localization for activities towards the Third World and the search for the highest gross profit margin.
Finally, the last is the policy of authorities. The repulsion or the attraction exerted by some economic areas and especially some countries on FDI also depends largely on the political context of the country or the area. The capital flees nations where devaluations are frequent and where FDIs are hard to realize and when there is risk of nationalization or accentuated control of economic life.
The cost and the availability of capital also play an essential part at this level of decision because prospects for profit are related to countries with attractive financial and tax conditions, in particular with those offering good interest rates, exchange controls, systems of taxation, custom control systems, investment security, etc.
DETERMINANTS
30In what is following I will analyze the various determinants which return in the decision- making process of the choice of the site of localization.
Knowing that the objective of the research is to supplement academic knowledge starting from the study of empirical situations, the method of investigation by survey was selected making it possible to carry out a standardized data acquisition from a great number of companies. The recourse to this method allows for the comparison between obtained results and those of pre-existent empirical studies.
FIRST CASE STUDY
The studied population or the sample of the case study I have chosen, was defined by the authors and supplemented by existing literature. It includes companies belonging to the sector of manufacturing industry or having an industrial activity in relation to the FMCG retail trade which is a fundamental element of my model.
These companies that were investigated opened or announced the opening of a new site in a foreign country during the year 2001 and the first quarter of the year 2002. As the data is recent, a greater degree of relevance can be highlighted.
Because of this investigation, it has been possible to establish a classification from the most important to the least important criteria for the choice of the establishment of the future company.
This table includes statistics concerning fifteen decisions of foreign localization. These observations show at a glance the specific characteristics of the decisions taken at the national scale31.
The following table shows us empirical results presented as a classified list according to the percentage of answers (analysis of frequencies) on behalf of the companies considering these factors as very important.
30Bertrand Sergot, Les déterminants des décisions de localisation, Thèse présentée et soutenue publiquement le 6 décembre 2004 en vue de l’obtention du doctorat en sciences à Paris
31 Bertrand Sergot, Les déterminants des décisions de localisation, Thèse présentée et soutenue publiquement le 6 décembre 2004 en vue de l’obtention du doctorat en sciences à Paris, p.369
1 Cost of local labor 66,7%
2 Quality of road and/or highway network 60%
3 Attitude of governmental authorities with respect to foreign investors 46,7%
4 Local presence of important customers 46,7%
5 Qualified labor instantaneously available 40%
6 Level of political risk 40%
7 Will to defend or improve the trading position of the company 40%
8 Quality of infrastructures of telecommunication 40%
9 Level of exchange rate risk 36,6%
10 Tax incentives and assistances granted by governmental authorities 33,3%
11 Flexibility of industrial and social legislation 33,3%
12 Density of local industrial fabric 33,3%
13 Level of trade union 33,3%
14 Growth potential of the domestic market 33,3%
15 Proximity with headquarters of the company 33,3%
16 Size of the domestic market of the host country 33,3%
17 Quality of the higher educational system 33,3%
18 Presence of sources of raw materials useful for the company 26,7%
19 Level of taxation 26,6%
20 Quality of international airlines 26,6%
21 Former presence of others sites of the company 26,6%
22 Weakness of linguistic barriers 26,6%
23 Quality of primary/secondary education system 20%
24 Little or non-qualified labor 20%
25 Importance of tariff barriers 20%
26 Quality of the banking structure 20%
27 Cultural proximity with the country of origin 20%
28 Membership of a free trade area 20%
29 Directors coming from the host country 13,4%
30 Discharged qualified labor 13,3%
31 Availability of financing in capital 13,3%
32 Education system in french language 13,3%
33 Quality of the harbor infrastructures 6,7%
34 Quality of the railway infrastructures 6,7%
35 Former presence of concurrent companies 6,7%
With this table a reflection is posed on these results and the way in which companies act when a choice in the decision of an FDI intervenes. The first observation of this classification is that the companies seem to be very focused on economic rationality. I imply by this definition that they attach a great importance to costs and the availability of the factors of production. That is shown by the ranking of the cost of labor, its qualification and the level of transport. In parallel, this table makes it possible to locate the main motivations of an FDI already defined as the will to conquer new markets or to facilitate the raw materials supply.
SECOND CASE STUDY
Concerning the next classification table, the data used comes from the Global Manufacturing Network Survey and was administered to “plant managers” in 31 countries representing 73 large MNFs whose headquarters are located in the United States, Europe, and Japan.32 According to the authors this study was made with a defining aim of plant localization determinants.
These can be grouped into three categories:
Proximity to other network nodes (grouping of one or more network elements at one or more sites which provide network related functions):
Proximity to important markets Proximity to key customers Proximity to key suppliers Proximity to other facilities
Access to production factors:
Access to raw materials Access to energy
Access to capital
Access to local technology Access to skilled labor Access to low cost labor
National and regional characteristics:
Access to protected markets Tax conditions
Regional trade barriers Government subsidies Exchange rate risk Language
Culture and politics Environmental regulation Labor practices and regulation
The following table shows ranks of each determinant according to their degree of importance.
32 Thomas H. Brush, Catherine A. Maritan, Aneel Karnani, The plant location decision in multinational manufacturing firms: an empirical analysis of international business and manufacturing strategy perspectives, Production and operations management Vol.8, No.2, Summer1999, p.120
1 Proximity to important markets 2 Proximity to key customers 3 Advanced infrastructure 4 Access to skilled labor 5 Access to low cost labor 6 Proximity to key suppliers 7 Access to energy
8 Language, culture, politics 9 Access to raw materials 10 Proximity to other facilities 11 Labor practices and regulation 12 Tax conditions
13 Access to protected markets 14 Environmental regulation 15 Regional trade barriers 16 Government subsidies 17 Exchange rate risk
18 Access to local technology 19 Access to capital
These findings suggest that plants are not located primarily in multinational plant networks to take advantage of hedging against exchange rate risk or reducing the impact of trade barriers.
This does not mean that exchange rates or other government policies such as tariffs are not associated with FDIs, it only indicates in this study that these determinants are less important than other determinants for the plant localization decision. In general, when plant localization determinants are ranked by importance, the most important determinants tend to be those that reflect how firms manage their multiple plant networks such as proximity to important customers and suppliers.
The contribution of this thesis is that it combines manufacturing and international business perspectives to explain a critical decision for MNFs. The decision of plant localization.
THIRD CASE STUDY33
In order to close this chapter concerning the case studies I chose to present results from a DESS-master “Entrepreneuriat et Redéploiement Industriel” which gathers several research tasks of factors of the optimal localization. Each following case was carried out by a specialist in the specific area. I will now present the list of corresponding criteria.
The case of Agadir
The choice of the area of Agadir in Morocco is explained from its activity and its position as a second economic pole of Morocco after the town of Casablanca.
Empirical results: listing of determinants
The geographical situation The market
Level of transport
Availability of grounds and buildings
Quantitative and qualitative aspect of the labor Economic environment
The framework of life
The intervention of authorities
The case of PU-dong
Thanks to its ideal environment, Pu-dong, which is a zone of Shanghai, attracted many companies, including MNFs. Today 48 MNFs, which are classified under the heading of the first 500 world groups, have created 100 companies in Pu-dong, such as for example G.M, INTEL, NEC.
Empirical results: rankings of determinants Economy
The system of industry The financial policy The market
The infrastructure Labor
Culture, education and medical system Legal environment
33 M. Ajabid, K. Bonnet, D. Da Silva, J. Guernut, D. Jamot, P. Rohart, D. Wang, Les facteurs de localisation des entreprises : De la Silicon Valley à Agadir, Laboratoire Redéploiement Industriel et Innovation, Dunkerke
The case of Thailand
In 2000 FDI’s increased to almost 60% due to the policy of incentive of the government whose aim was to improve competitiveness of the country.
Empirical results: listing of determinants The cost of work
The qualification of labor The flexibility of work Child work
Inexistence of a trade-union freedom Official incentives
Reduction in transport’s costs and import/export facilitation
The presentation of these three case studies enabled me to synthesize results coming at the same time from researchers and companies.
Why did I choose these 3 case studies?
These various reports and research tasks are relevant from the way they were written, from their authors and especially from the global vision of the situation they came from.
Even if the techniques of analyses are varied and tackle the subject in a different way, finally some axis like the market, production costs or the attitude of the government are mostly common to all works and reappear each time as determinants. Some others appear to be especially related to the area like the case of Thailand and its child labor force.
ERRORS OF LOCALIZATION
Various works and theories on which I paid attention to, try to explain my model which shows that there are many criteria which appear to be common to a majority of companies according to the results of the empirical research. But it is important to specify that this data will have to be treated with the greatest prudence.
The specific purpose of the data and these conclusions are to direct the reader towards the situation and to contribute to the understanding of the subject. It should not be taken for granted or the gospel truth.
In that way I will present, in this paragraph, errors which are mainly made at the time a company wants to penetrate a new market. This list34 is the result of post-establishment observations and will make it possible to improve the knowledge of the process before defining the determinants:
Insufficiency of the research and of the census of the needs.
Excessive attention given to the purchase price of the land and/or the building or to the rent.
Undervaluation of the cost of displacement or the cost of installation.
Impetuous decision making because of advantages offered by the authorities.
Guided choices by prejudices or preferences rather than by objective data.
Resistance of the leaders to leave for a new site.
Estimation of the potential labor in terms of standard of wages while neglecting the productivity and their reputation.
No attention given to the economic and urban environment of the future site.
Displacement based on immediate profits and not on long-term forecasts.
Bad estimation of competitors.
Choices not considering the needs for the various divisions of the company. Lack of representation of those in charge of the localization process.
Lack of recognition and identification to changes in the market, methods of transport and raw materials.
34 http://www.geoeco.ulg.ac.be/lmg/locindus/loc_ind.html
PHASE III MODEL
PRESENTATION
Now that conceptual and empirical phases have been reviewed and considering that various information relating to these subjects are understood, I will be able to present my model of localization referring to the countries of West Africa. The aim of this model is to propose a preset list of criteria to a company for its future localization.
The methodology I adopted is made up of three processes according to the diagram presented in the following page:
1 : “Starting Process”
Because of the multitude of factors which influence localization I had to make an initial choice in order to be able to start my analysis. Making a choice is not an obvious task because it is essential to concentrate directly on the most important. This is why I have referred to the approach used by JTI.
2 : “Evaluation Process”
This process will make it possible to show the value of the criteria which I chose in the
“Starting Process” for this sub-region. I chose to divide this evaluation into three parts.
Regional specificities of West Africa will bring elements on the current evolution of the situation compared to each criterion and thus will give an overall vision. Case studies and the errors of localization previously mentioned are the key elements in evaluating and judging the importance of the criteria. The following diagram might or might not bring new modifications to my list of determinants.
3 : “Validation Process”
To conclude with my reasoning, I will use as a benchmark the analysis of an MNF whose headquarters are based in Switzerland. This process will be analyzed in detail in the next chapter.
The 3 leading processes to my final list of criteria regarding any FMCG localization in West African States:
3
2 Process 1 Japan
Tobacco Final list
Benchmarking Case studies
Specificities of the sub-region
Errors of Localization
PROCESS I
THE JTI LOCALIZATION PROCESS
When JTI takes steps concerning the opening of a new production site, all decisions are guided by four key processes that the company defines as:
Political opportunity
JTI may consider localizing manufacturing operation to answer to sudden taxation or regulation changes (such as increase of import duties or reduction of quotas) with the aim to ensuring continuous supply of acceptable financial conditions in the market.
Business opportunity
Market opportunities may arise sometimes via commercial offers proposed by the means of contacts already established in the concerned area. These contacts could be suppliers, partners, etc.
Privatisation or take over opportunity
Recent trends show that governments have a tendency to privatize tobacco monopoly mainly via direct sale or sometimes via IPO (Initial Public Offering).
Private medium-size companies also happen to be put up for sale when market conditions are attractive. The above two options always represent opportunities for accessing local production with limited risks.
Systematic study
When none of the opportunities defined above can be reached, there remains only the systematic study as last tool of research for the best establishment area.
JTI will apply a methodical aproach in order to define the necessary criteria to its future operations which will be based from a point of view of satisfying consumers demand while maximizing shareholder value and limiting risks. It is in this precise axis that the company will direct its choices of the determining criteria.
At the beginning, the company defines exactly the market size based on existing competitive information. Then the company will identify the potential units of sale which are subjected to projections over several years according to the nature of the country. If it is regarded as a risky country because of various internal factors such political instability for example, projection will be curtailed. Next quantity is defined, how much share of market could be gained from competition. That is valued according to the average market retail selling price. At this stage the company will assess, to the best of available market information the production cost per unit which include duties and other local taxes applicable. Then the company will deduct from the above the necessary investments to come up with a business plan and a free cash flow forecast. Last point, if in this systematic study, the company finally arrives with a decision shared between several areas, the political risk factor will dominate.
MOST IMPORTANT DETERMINANTS TO JTI
According to the systematic study of JTI the most important criteria are defined as follows:
CRITERIA (listing) GDP (per capita)
Climate Population
Access to the sea Level of industrialization Market size
Trade agreements membership Taxation
Labor force State governance Inflation
Currency risk Raw material
Infrastructures (airport, roads) Utilities services (electricity, water) I will now define and explain each term in the above table:
GDP
The GDP will be used as the indicator of the purchasing power and its ability for people to order goods. Purchasing power is closely related to inflation and its variations. If the price goes up the related purchasing power falls. The GDP is “the monetary value of all the finished goods and services produced within a country including all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory”.35
Climate
Each country has its own climate. This factor can be essential in determining the localization in countries under strong climatic influences such as rainy seasons, deserts, tornadoes, hurricanes or earthquakes.
http://www.answers.com
Population
The population will inform us about the number of inhabitants in a country. The results shows a higher density in urban as opposed to rural areas. The population is a factor determining the market size on which market share can be gained from other competitors.
Access to the sea
As West Africa has a significant coast line, access to the sea and maritime transport, whose development is closely related to international trade, far remain as the principal means of transport of goods in the sub-region. According to statistical sources more than 90% of the exchanges using maritime transport represent an annual volume of more than 5 billion tonnes36
Level of industrialization
The level of industrialization contributes to the economic growth. The larger the labor sector in the industry, the higher the level of income and the development of the country or of the area.
Trade agreements’ membership
In West Africa, trade agreements are instruments which make it possible to group English and French speaking countries of the same area. Often achieved according to their engagement in coordinating their economies in structural and financial policies.
These ratifications make it possible to harmonize the legal system which have great disparities between country and to lead to custom unions, common markets and free movements of people and goods.
Taxation
Taxes are significant barriers to entering the market. Because of trade agreements, the West Africa region can become more attractive to FDIs. Benefits to companies could be of interest in the areas of lower taxes for goods, property, personal relief, etc. There are two basic kinds of taxes37 :
“The excise tax is directly imposed by the law-making body of a government on merchandise, products, or certain types of transactions, including carrying on a profession or business, obtaining a license, or transferring property. It is a fixed and absolute charge that does not depend upon the taxpayer's financial status or the value that the taxed property has to the taxpayer”.
“The corporate tax is a levy placed on the profit of a firm; different rates are used for different levels of profits. Corporate taxes are usually levied by all levels of government (ie. State and Country)”
36 http://www.mer.equipement.gouv.fr/commerce/02_flotte/01_transport_maritime_francais/index.htm 37 www.answers.com
