Ethiopia: An Emerging Market Opportunity?

Macro environment is the external or uncontrollable factors that can affect a company’s performance or profitability such as economic, demographics, legal, political, and social conditions, technological changes, and natural forces” (Business Dictionary, 2018). With reference to the case entitled ‘Ethiopia: An Emerging Market Opportunity?’, three (3) companies, CareCo, ShoeCo and Medco, are deciding when and how they should enter the Ethiopian market. CareCo, a Personal-care products manufacturer, is driven by the expectation that the purchasing power of the consumers would grow and wants to enter the market early before other competitors do. ShoeCo, a footwear manufacturer, is driven by the low labor costs in Ethiopia. MedCo, a manufacturer of pharmaceuticals and over-the-counter medications, expects that demand would grow quickly for the next 15-20 years. Keeping these important factors in mind, these companies must act fast and choose the right entry strategy that would ensure their success in the Ethiopian market. These companies have decided that the best entry strategy would be to build a facility in Ethiopia. To evaluate the country’s economy, a PEST analysis would be applied as follows:

Political Factors –There is political stability due to the rules and policies implemented by leading government which include free or open access to foreign investments and privatization of businesses sectors. The country offers favorable tax and customs regime for businesses that match any criteria that can bring economic growth. Nevertheless, with some advantages comes disadvantages, Ethiopia has experienced corruption in the public-sector and it was expected to keep rising.

The main issue faced by foreign investors was a lack of transparency in government tenders. It was suspected that many firms received preferential treatment while others did not. This level of corruption would create an unfavorable business environment for these three companies and they would be the subject of unfavorable treatment, which would decrease their chances of obtaining the highest level of profitability. This is an issue that all three companies must consider when entering the market, especially if they would want to maintain a competitive advantage over the local firms that are receiving preferential treatment from the government.

Infrastructure - These companies would face high logistics costs due to the inadequate road infrastructure since most of their potential customers may be hours away from the facilities and getting the products to them would be very expensive. Power cuts would also be an issue, and it would result in high production costs due to the need to purchase expensive generators. Poor telecommunications and internet outages would interrupt the companies’ daily operations and disrupt the communication process with their customers.

Human Resources – Low wages in this country can create a huge cost advantage for labour intensive businesses. Hence, with the development of the facilities, the companies would also need to hire skilled labour to produce their products. ShoeCo is expecting to hire 2,000 locals when fully operational, so the large pool of workers in the market (10,000 university graduates each year) would be specifically beneficial to that company. Therefore, ShoeCo would not have to hire expatriates, which is more expensive than hiring local labor.

Limited competition – because of the low competition in the market, these companies won’t have to work as hard to maintain a competitive advantage. However, the threat of new entrants would make the environment more competitive. Low competition means that the companies would have tremendous strength in the market and achieve high profit margins. Fragmented distribution channels – Most distributors in the Ethiopian market, rely on local retailers to get products to customers outside of the city. However, since CareCo, ShoeCo and MedCo plans to open a facility in the market, they would have full control of their distribution networks. The issue is that most foreign companies find it hard to manage this distribution channel without the assistance of local partners. This would be an added cost to the companies especially in the early stages of their operations in the market. They would have to rely on some local retailers to distribute products to customers in the beginning and then find a way to do so on their own.

Cross-cultural adaptation and customer relationships – so far, all companies are considering building facilities in the new market with no mention of a joint venture. Considering the difficulty regarding the ability to build trust with potential customers in that market, these companies must understand the local customs and norms to truly thrive in this market. CareCo and ShoeCo would not have a hard time building trust with consumers because most Ethiopians are aware of their brands and are familiar with their products. MedCo, on the other hand, must learn the market and build partnerships with local investors to learn more about the culture of the people and convince them to consume their products.

Intellectual property -the unreliable intellectual property protection in Ethiopia would be detrimental to all companies.

Additionally, there is low law enforcement in the market, which leads to counterfeit and pirated products and the use of well-known trademark names without permission. With their personal care products already being popular in the market, CareCo has planned to improve their relationship with the government to help combat the issue of their products being counterfeited and the brand being infringed upon. ShoeCo and MedCo may face trademark issues if they do not learn to deal with the potential of their products being counterfeited.