Ethiopia: An Emerging Market Opportunity? ________________________________________________________________________________________________________________ HBS Professor John Quelch and writer Sunru...

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Ethiopia: An Emerging Market Opportunity? ________________________________________________________________________________________________________________ HBS Professor John Quelch and writer Sunru Yong prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. Copyright © 2015 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. J O H N Q U E L C H S U N R U Y O N G Ethiopia: An Emerging Market Opportunity? In January 2014, three companies were debating whether they should extend their operations to the emerging market of Ethiopia. Since the 1990s, economic reforms and liberalization had opened opportunities for foreign direct investment, and businesses from many countries were already active there. All three companies believed that they needed to decide what to do soon. In a London boardroom, the director of global strategy at CareCo argued, “The purchasing power of Ethiopian consumers will only grow. If we move in now, we ensure that our brands are established. If we wait, competitors will have time to build brand awareness and tie up distribution channels. We cannot miss this window of opportunity!” A similar conversation was under way in Beijing, where the ShoeCo executive team debated the merits of the Ethiopian opportunity. The vice president of global sales commented, “The labor costs in Ethiopia are low. A factory there would give us a great cost position to serve the local and regional markets. This would require significant expenditure and risk, but could establish us there.” At the MedCo headquarters in Abu Dhabi, the chief operating officer cited the expected growth in health care spending and MedCo’s own track record, and noted, “Demand in Ethiopia will grow quickly for the next 15 or 20 years. We offer good quality at a lower cost than competitors do. This value proposition has been our blueprint for success!” Historical Background The Federal Democratic Republic of Ethiopia is a landlocked country in East Africa. It is bordered by Eritrea to the north, Djibouti and Somalia to the east, Sudan and South Sudan to the west, and Kenya to the south. Many Ethiopians believe their country is distinct from its immediate neighbors and the rest of sub-Saharan Africa because of its religious and cultural history and its success in warding off numerous attempts to colonize the nation. From 1974 until 1991, Ethiopia was ruled by a Soviet-backed military junta. This regime was marked by human rights abuses and corruption. Under its rule, Ethiopia suffered a series of famines that left 9-915-501 J U N E 1 6 , 2 0 1 5 Do N ot C op y or P os t This document is authorized for educator review use only by LAWRENCE POTTER, Macquarie University until Oct 2022. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860 915-501 | Ethiopia: An Emerging Market Opportunity? 2 BRIEFCASES | HARVARD BUSINESS SCHOOL one million people dead and drew worldwide attention. These events led many foreigners to associate the country with poverty and starvation, a perception that still lingered. In 1991, the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) overthrew the standing government. Following several years of transition, a new constitution was written in 1994. The EPRDF was victorious when formal elections took place in 1995. The government had remained stable since then and had run the country as a single-party state. Starting in the mid-1990s, the government invited private companies to compete in sectors that the state had controlled. More than 300 state-owned enterprises had been privatized, attracting both domestic and foreign investors. The government also eased the administrative burden of starting a business and revised the tax code to encourage private enterprise. Industrial Policy and Market Opportunities Between 2003 and 2013, Ethiopia’s population increased by 30%, to 94 million people, and its GDP increased from $8.6 billion to $47.5 billion.1 Economic growth had occurred relatively more in the service and agricultural sectors than it had in the manufacturing sector. In a recent report that assessed the market opportunities for 54 countries in sub-Saharan Africa, Ethiopia had ranked sixth.2 The Ethiopian government adhered to a state-led development model. Massive public investments in transportation, power, and telecommunications infrastructure were key drivers of economic growth. Public investments accounted for nearly one-third of GDP. Yet, with public debt at 23% of GDP, the government still had capacity to finance its projects.3 Improvement of road infrastructure and power generation, in particular, was expected to pay long-term dividends in fostering private-sector growth and attracting foreign capital. New rail and road corridors to modern seaports in Djibouti were intended to mitigate the challenges of being a landlocked country and give access to a trade route that accounted for 30% of global container traffic.4 The government also had a presence in sectors it considered important. Areas of state monopoly or dominance included telecommunications, power, financial services, air transport, and shipping. Both domestic and foreign firms complained about unfair competition when dealing with state-owned and party-affiliated businesses. Such companies were perceived to have an advantage in accessing credit, navigating government bureaucracy, winning government tenders, and clearing customs. The Ethiopian government attempted to protect local companies and encourage import substitution, while attracting inflows of foreign direct investment. It reserved some industries for domestic firms only, such as the media, retail, and transportation industries. Similarly, the financial sector was reserved for domestic investors, and most bank assets were held by state-run banks. The government also promoted certain sectors, such as domestic pharmaceutical manufacturing.5 The government also attempted to attract foreign investment for local manufacturing and export- oriented sectors that needed inflows of technology and knowledge. It provided income-tax exemptions, for up to five years, to investors who established enterprises in manufacturing, agro-processing, and the production of agricultural products. Enterprises in targeted areas of underdevelopment could enjoy an additional tax deduction after the standard exemption period had expired. Ethiopia also granted customs exemptions for capital goods, such as plants, machinery, equipment, spare parts, and construction materials. The law protected private property and permitted investors to convert capital and profit into foreign currency. Despite this policy, there had been shortages of foreign exchange due to the country’s trade imbalance, with imports far exceeding exports. Overall, the World Do N ot C op y or P os t This document is authorized for educator review use only by LAWRENCE POTTER, Macquarie University until Oct 2022. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860 Ethiopia: An Emerging Market Opportunity? | 915-501 HARVARD BUSINESS SCHOOL | BRIEFCASES 3 Bank ranked Ethiopia 129th of 189 countries in its global rankings for ease of doing business.6 However, Ethiopia ranked within the top third of countries in sub-Saharan Africa. Investing in Ethiopia Foreign companies deciding whether to invest in Ethiopia had to consider several other factors: Infrastructure Ethiopia was near the bottom of the World Bank’s ranking of countries for facilitation of cross-border trade and logistics performance.7 Even with a modern air-cargo terminal, Ethiopia depended on the port of Djibouti for surface shipments.8 Although the road infrastructure between cities had improved, more than one-third of the population still lived five or more hours from a city. Although the government was constructing a high-speed rail and multi-lane highway connection to bordering countries, logistics costs were expected to remain high in the near term. There were other infrastructure limitations. The power grid had been upgraded, but power cuts remained frequent. Many businesses had to rely on expensive backup generators. Likewise, the quality of telecommunications was spotty and Internet outages were frequent. Human resources Ethiopia was cost competitive with China for light production.9 It also produced more than 10,000 university graduates each year, creating a supply of skilled, affordable employees. Some foreign employers, particularly from the United States and Europe, believed that the gaps between expatriate and local employees in work culture, management style, and communication were difficult to bridge. Many foreign businesses viewed native Ethiopians who had worked elsewhere and returned as the best-trained talent, but such hires were relatively scarce and costly. Limited competition Many Ethiopian industries were still developing, so firms with greater marketing resources or superior products could capture market share more easily. Yet the limited competition also created opportunities for upstarts that could negate the advantages of an established multinational. Because Ethiopia had long been closed to foreign influence, global brands did not enjoy the same awareness among consumers. Fragmented distribution channels Distributors sourced many goods from Mercato, the large wholesale market in Addis Ababa, and relied on sub-distributors to serve retailers outside cities to rural areas, where more than 75% of Ethiopia’s citizens lived. There were no international retailers and very few retail chains with a significant footprint; small independent outlets and kiosks remained the largest channel. Servicing so many small players was costly. Some wholesalers, particularly in consumer goods, argued that a realistic estimate of the addressable market had to exclude households outside of urban areas. Because wholesaling of any imported goods was restricted to domestic firms, importers had to work with local partners. Any firm engaged in local manufacturing was free to manage its own wholesaling and distribution, but some foreign companies found it difficult to navigate the distribution networks and manage customer relationships without local partners. Cross-cultural adaptation and customer relations Entering Ethiopia required an understanding of local customs, norms, and expectations. In consumer marketing, for example, companies could inadvertently offend a particular group with the wrong
Answered 1 days AfterFeb 10, 2022

Answer To: Ethiopia: An Emerging Market Opportunity?...

Rudrakshi answered on Feb 11 2022
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Microsoft Word - TMKT603 International Marketing Management T3 2021 FE Paper.docx
ANSWER each question and note each question is of a varied mark.
Questions to be answered regarding the case study:
Q1 = 60 marks; Q2 = 40 marks
TOT
AL: 100 Marks
1) Perform a strategic analysis of the Ethiopian market opportunity as presented in the case study reading and its attractiveness as an International Market. You MUST demonstrate your analysis applying the Four Pillars of the First Principles Model (Lecture 2). Each pillar must be addressed (each of the four pillars are valued at 15 marks):
a. Segmentation,
· Clients who currently cook with clean fuels are not considered as being potential customers.
· Early adopter families in metropolitan areas are perhaps the most likely to have access to cleaned fuels for cooking.
· Household members in peri-urban and rural regions that adopted clean cook stoves early on seem to be the most likely to be able to purchase them. Financing may allow secondary-follower families to purchase lower-cost clean cook stoves or higher-priced items.
· Lower cost clean cook stoves will be much more affordable for families that follow in the footsteps of their elders.
· There may be consumers at the base of the heap who can afford clean stoves because of creative ideas.
They are well off, with a comfortable standard of living that includes having access to modern conveniences like running water and electricity. Clean cooking practices may be more accessible to people in these homes because of their lower purchasing power.
b. Consumer Change,
The Ethiopian consumer price index climbed from 4.9 index in 1970 to 319 index in 2019, expanding at an average yearly rate of 9.39 percent. This index measures variations in the cost to an average consumer of procuring a certain basket of goods and services that may be set or variable at regular periods, such as yearly or biannually. Along with the brand extensions, which are emerging every now and then, the buying power of the customer will increase.
Due to limited competitiveness and Russian intervention, international companies did not get the same level of brand awareness from their consumers as domestic businesses. Companies might unwittingly insult a specific group by making the incorrect decision in the business, or they could...
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