Case Analysis - Paint Industry - Free Essay Example

CAGE ANALYSIS PAINT INDUSTRY Potential for paint manufacturing business in Kenya: Currently, there are four main players in the paint industry in Kenya namely, Crown Paints, Basco Paints, Sadolin and Solai Paints. The paint market mainly consists of two categories- Premium paints and Economy paints. The number of housing complexes, commercial buildings like offices and shopping malls in Kenya have led to increased demand for decorative paint and coatings in the country. Due to rapid urbanization (50% of Kenyaà ¢Ã¢â€š ¬Ã¢â€ž ¢s population expected to live in urban areas by 2030), the domestic construction industry has started competing in the global space and is creating huge demand for improved quality of decorative paints. According to the Frost Suvillian report on the decorative paints market in Kenya and Tnzania, the market earned total revenues of over $123 million in 2011 and is estimated to reach $190 million by 2018. In order to achieve one of the Governmentà ¢Ã¢â€š ¬Ã¢â€ž ¢s objective of making Kenya a middle-income country by 2030, Kenyaà ¢Ã¢â€š ¬Ã¢â€ž ¢s Government has passed the National Construction Authority bill which is expected to initiate new construction projects and make the quality of existing infrastructure better. This is likely to result in higher adoption of better quality paints. Development process in neighbouring economies will further boost exports and force manufacturers to increase production capacity. Henc e, paint manufacturing business appears to be very lucrative in Kenya and paint companies around the world should leverage this potential. In order to do a CAGE Analysis, I have chosen two African countries namely- Kenya Nigeria. CAGE Analysis CULTURAL DISTANCE (using Hofstede model): KENYA NIGERIA Diversity 13 ethnic groups and 27 sub-groups. 3 Major Ethnic Tribes: Yoruba, Hausa-Fulani Igbo Language, Religion, Ethnicity The Most Spoken Languages are English and Swahili. Over 250 languages. English is the official language Gender 1.02 Males/Female 1.031 Males/Females Power Distance Index The index is 64, there is considerable gap between the rich and poor. The index is 77, the gap is much higher than Kenya. Rich is getting richer and poor is getting poorer (similar to India). Individualism/ Collectivism Collectivist Society Collectivist Society Masculinity (MAS) Interpersonal relationships are given high importance. They follow the Ubuntu philosophy. Interpersonal relationships are given high importance. They follow the Ubuntu philosophy. Concept of extended family is also followed. Male chauvinist society. Uncertainty Avoidance Index The index is 52 which is moderate. The index is 54 which is moderate. Long Term v/s Short Term Orientation Long Term Orientation Long Term Orientation Paint companies while setting up operations in Kenya should consider the cultural diversity of the country. Their main focus should be on marketing communication as language has to be given high importance. Packaging designing of the paint cans should be in accordance with the colour preferences of various ethnic groups. Since interpersonal relationships are given huge importance, the paint companies should focus on building trust and sustaining long-term relationships with customers instead of merely selling the product to make profits. The companies should also produce long lasting paints due to populationà ¢Ã¢â€š ¬Ã¢â€ž ¢s long-term orientation. ADMINISTRATIVE: KENYA NIGERIA Trade Relationships East African Community(EAC) COMESA. South African Development Community: Therefore there is a lot of scope. Member of OPEC, ECOWAS (Economic Community Of West African States) and G20. Government and Political Stability Multi-party Democracy. New Jubilee Administration is approaching private sector as main partner for development of Kenya. The political environment is quite stable. Nigerias political parties arepan-nationaland irreligious in character. Ethnic clashes exist. Politically instable. NGOs Considerable role in building Kenyaà ¢Ã¢â€š ¬Ã¢â€ž ¢s economy. Ità ¢Ã¢â€š ¬Ã¢â€ž ¢s run by expatriates. Estimate spent of $4billion. In the paint industry, several NGOs that fight against the excess level of lead. IPRs Rank 75/97 on IPR Index published International IPR Index 2014. Rank 94/97 on IPR Index published International IPR Index 2014. GEOGRAPHIC: KENYA NIGERIA Size 580,367 Sq. Km 923,768kmsq. 14th largest country in Africa Climate Tropical along the coast à ¢Ã¢â€š ¬Ã¢â‚¬Å" rainfall and cool throughout. Arid further inside. Tropical Climate. Hot and wet in Southeast Dry in Southwest and inland Transportation Extensive paved unpaved roads. Railways link major ports cities. Extensive paved unpaved roads. Railways link major ports cities. Landlocked No. No Ports Major port à ¢Ã¢â€š ¬Ã¢â‚¬Å" Kilindini Port, Kisumu and Mombasa. TheLagos Port Complexand Tin Can Island Port in Lagos. Airport 16 Airports. There are 26 airports of which 5 are international ECONOMIC: KENYA NIGERIA GDP(2013) $44.10 billion US $502 billion GDP Growth(2013) 5.2% 6.2% HDI Rank 147 Rank 152 Ease of Doing Business Rank 136 Rank 170 Logistics performance index (low 1- 5 high) 2.81/5 2.39/5 Growth competitiveness index (low 1- 5 high) 3.93/5 3.82/5 Debt to GDP ratio 51.7% 11% Transparency Index Rank 145/175 136/175 Labour Force Agriculture 75%, industry and Services 25% Agriculture: 70%, industry and services 30% Exports Tea, horticultural products, coffee, petroleum products, fish, cement Oil and natural gas Imports Machines tools, transportation tools, petroleum products, motor vehicles, iron and steel, resins and plastics Refined petroleum oils, car, telephones. Conclusion: After evaluating various parameters of CAGE, I conclude that for a paint company, starting operations in Kenya makes more sense. If we take a look at both the economies, Nigeria definitely has a good GDP growth rate and better transparency index. However, Kenya too is not far behind. Following are the reasons for choosing Kenya: Largest country in East Africa: Kenya is known to be the largest and the most developed economy in the East African region. It has the second largest population within the East African Community (EAC) at about 42 million and is growing at a rate of 2% per annum. The country possesses a very high growth prospect as it is supported by an emerging, urban middle class with an increasing purchasing power and demand for high value goods and services. This country alone contributes to more than 40% of East Africaà ¢Ã¢â€š ¬Ã¢â€ž ¢s total GDP. Strategic Location: As the largest country in East Africa, Kenyaà ¢Ã¢â€š ¬Ã¢â€ž ¢s strategic location and its highly conducive environment for business makes it an attractive place for investors and several international companies have made it their regional hub. This provides investors an access to the larger EAC and regional markets with over 390 million consumers. Kenyaà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital, Nairobi is too a huge transport Hub in East Africa which connects Jomo Kenyatta International Airport to numerous destinations around the world. Access to a wide market: Kenya is a member of several regional economic blocs and along with its strategic geographic location, the economy serves as the gateway to the EAC, COMESA, and many other trade arrangements. Potential gains from COMESA: Member Countries: 20 Population: 445 Million Total GDP: USD 360 Billion Trade Arrangements: Kenya also has membership with many trade arrangements and beneficiary to schemes that boost the trade. These schemes comprises of the Africa Growth and Opportunity Act (AGOA), WTO and EAC-EU Trade Agreement. Soon there will also be Tripartite Free Trade Area (FTA) cooperation between EAC, SADC and COMESA which will give access to a huge market with 600 million consumers. Stable political environment and investment policies: New Government: The new Jubilee Administration considers the private sector as the main contributor to economic and social advancement. The government is supporting privatization by divesting its majority shareholdings in State commercial companies via the Nairobi Securities Exchange. Regulatory reforms: Kenya is working towards reducing the cost of doing business. Hence, it is making extensive business regulatory reforms in order to reduce the number of licensing requirements to a large extent and to make the licensing system more transparent. Completely liberalized economy: Kenya is completely a liberalized economy. Over the years, it has removed all barriers that previously caused hindrance to trade and private investment which comprises of exchange controls, import and export licensing, FDIs, restrictions on remittances, etc. Therefore, Kenya with less institutional voids, strategic location, a better rank in ease of doing business, a better logistics performance index, wider market access and a deep economic system looks like a more attractive destination for investment than Nigeria.