Doing business in Ethiopia Killer Ks

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CareCo Kristian & Christian

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CareCo Culture: Ethiopia vs. UK

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Careco risk assessment RisksLikelihoodImpactScoring: (likelihood + 3xImpact)/2Resistance by consumers for new products359Competition by counterfeit products resulting in decreasing margins, profits, and competitive advantages359Delays in production and delivery of goods 548.5Unfair competition from local and state-backed companies448Delays in receiving products448Decrease in sales448Problems with Ethiopian currency market537Possibility of governmental instability146.5Challenges to the business model436.5Difficulty to navigate and manage customer relationships436.5Cultural clashes between employees336Hindering of company operations235.5Delays in paperwork due to government bureaucracy425Lack of experienced native human resource personnel324.5Opportunity loss (government tenders)112

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Careco - financial analysisIncome statement (in $ millions)Year1234567Sales6.2511.9316.8421.7526.7031.6936.72COGS 2.504.576.187.618.9010.0311.02Gross profit3.757.3610.6714.1417.8021.6525.70Fixed costs12.0012.5013.0013.5014.0014.5015.00EBIT-8.25-5.14-2.330.643.807.1510.70

CareCoYearAddressable market$125M1234567Market growth15-20% over 10 years (0.5%year)-15.0015.5016.0016.5017.0017.50Projected market shareyear 1: 5% year 7: 25%5.008.3311.6715.0018.3321.6725.00Projected gross marginsyear 1: 60% year 7: 70%60.0061.6763.3365.0066.6768.3370.00Projected fixed costs Year 1: $12 year 7: $1512.0012.5013.0013.5014.0014.5015.00CAPEX$55M-

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CareCo Financial ratios/analysisTotal EBIT(7 years): $6.57MROI (7 years): -88%IRR (7 years): -18%

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Careco SWOT

Strengths

High brand awarenessGlobal brand recognitionOpportunities

Market growthIncreasing purchasing power Low labor costPossible higher marginsTax incentives

Threats

Competition has established manufacturingIP infringementUnderdeveloped infrastructureWeaknesses

Struggling in key marketsLow margins and high custom duties when working with local dist.

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Careco Available optionsLocal AgentLicensingSubsidiary

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Careco RecommendationAction planFind a partner with excellent access to the market and distribution channels.Engage in hedging techniques in order to avoid currency risks.Attempt to secure credit lines with local as well as international banks.

Joint Venture

Government-backing: Tax breaks and the possibility to export

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ShoeCo Kienan & Kamola

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ShoeCo Culture: Ethiopia vs. China

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Shoeco risk assessment RisksLikelihoodImpactScoring: (likelihood + 3xImpact)/2Competition by counterfeit products resulting in decreasing margins, profits, and competitive advantages459.5Delays in production and delivery of goods 548.5Resistance by consumers to new products258.5Unfair competition among state owned and private enterprises448Delays in receiving products448Decrease in sales448Hindering of cash flow537Changes in government146.5Challenges to the business model436.5Difficulty to naviagte and manage customer relationships436.5Cultural clashes between employees336Hindering of company operations235.5Delays in paperwork due to government bureaucracy425Lack of experienced native human resource personel324.5Oppurtunity loss (government tenders)112

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Shoeco financial analysisIncome statement (in $ millions)Year1234567Sales2.704.055.206.367.538.719.90COGS 1.081.591.992.392.763.123.47Gross profit1.622.463.213.984.775.596.44Fixed costs10.0010.3310.6711.0011.3311.6712.00EBIT-8.38-7.87-7.46-7.02-6.56-6.08-5.57

ShoeCoYearAddressable market$90M1234567Market growth8-12% over 10 years (0.4% year)-8.008.408.809.209.6010.00Projected market shareyear1: 3% year7:10%3.004.175.336.507.678.8310.00Projected gross marginsyear 1: 60% year 7: 65%60.0060.8361.6762.5063.3364.1765.00Projected fixed costs year 1: $10 year7: $1210.0010.3310.6711.0011.3311.6712.00CAPEX$35M-

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ShoeCo Financial ratios/analysisTotal EBIT (7 years): $-48.93MROI (7 years): -240%IRR (7 years): Unneeded

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Shoeco SWOT

Strengths

Proven track record in local marketSimilar sociological mentality as EthiopiaOpportunities

Market growthIncreasing purchasing power of EthiopiansLow labor costPossible higher marginsTax incentivesExports

Threats

Government labor regulationsUnfair competitionTaxation policiesGovernment instabilityWeaknesses

Projected financials show negative revenues

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Shoeco Available optionsLicensingJoint VentureSubsidiary

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Shoeco RecommendationAction planContinue with current local agent strategyResearch export market more in-depth to explore other possibilities Based on conducted research and revised financial projections, reconsider joint ventureLocal agent

Government-backing: Tax breaks and the possibility to export

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MedCo Hiro & Hanna

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Medco Culture: Ethiopia vs. UAE

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Medco risk assessment RisksLikelihoodImpactScoring: (likelihood + 3xImpact)/2Loss of know-how resulting in decreasing margins, profits, and competitive advantages459.5Delays in production and delivery of goods 548.5Delays in receiving products448Decrease in sales448Opportunity loss (government tenders)347.5Unfair competition among state owned and private247Hindering of cash flow537Changes in government146.5Difficulty to naviagte and manage customer relationships436.5Challenges to the business model336Cultural clashes between employees336Resistance by consumers for new products235.5Hindering of company operations235.5Delays in paperwork due to government bureaucracy425Lack of experienced native human resource personnel123.5

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Medco financial analysisIncome statement (in $ millions)Year1234567Sales10.0019.1726.8334.5042.1749.8357.50COGS 3.005.597.609.4911.2412.8714.38Gross profit7.0013.5819.2325.0130.9236.9643.13Fixed costs10.0010.5011.0011.5012.0012.5013.00EBIT-3.003.088.2313.5118.9224.4630.13

MedCoYearAddressable market$200M1234567Market growth15%-15.0015.0015.0015.0015.0015.00Projected market shareYear 1: 5%, year 7: 25%5.008.3311.6715.0018.3321.6725.00Projected gross marginsyear 1: 70%, year 7: 75%70.0070.8371.6772.5073.3374.1775.00Projected fixed costs year 1: $10M, year7: $13M10.0010.5011.0011.5012.0012.5013.00CAPEX$85M-

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MedCo Financial ratios/analysisTotal EBIT (7 years): $95.33MROI (7 years): 12%IRR (7 years): 2%

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Medco SWOT

Strengths

Lean and agile manufacturing Know-howGreat efficiency

Opportunities

Operational subsidiary within a yearHigh government prioritizationGovernment tendersMarket growth

Threats

CounterfeitingDelays in productionPoor infrastructureIP theftHigh competitionFragmentation of distribution channelsWeaknesses

Cultural differenceResistance to organizational change

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Medco Available optionsLocal AgentLicensingSubsidiary

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Medco RecommendationAction planBuild strong relationship with the government.Ensure government participation as silent partner.The alternative is creating a JV with a local silent partner.JV with a silent partner

Government-backing: Tax breaks and the possibility to export

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Executive SummaryCareCo:Recommended strategy: Enter market as a joint-venture.ShoeCo:Recommended strategy: Keep local distributor, further research potential export revenues.MedCo:Recommended strategy: Enter market as a joint-venture with the government (silent partner).

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