Background of the Case
Alpha Response Technology Solutions is a Taiwanese technological firm. Its main product line is the GT80S titan SLI 18.4in Core i7 notebook. They are recently willing to enter the Rwandan market to extract the benefit out of it as the demand of the portable computer has recently increased. This report will present a quantitative report for the company to extend their operation in the Rwandan Special Economic Zone (intracen.org. 2017). A product line comparison is provided between ARTS and in the Positivo report with a numerical comparison with the western market. The company for the market will give the focus on manufacturing of the portable computer technology. The primary competitor of ARTS in the given market is positive BGH who is currently operating (worldbank.org. 2017). A PESTEL analysis of Rwanda along with five forces analysis is included in the report. Foreign investment policies in Rwanda, incentives and motivation of the company are presented in the report. A detailed recommendation and a finding summary is provided in the final part of the study.
|
Political |
Regardless of the mass genocide in the year 1994, the country is currently politically stable. Foreign direct investment is made favorable for the investors as there are no statutory limits on foreign ownership or control and abolishing discriminating official economic or industrial strategy. The tax incentive policies of the country are excessively favorable for the companies to enter the market. Export and import policies of the country is lucrative for the investorsThe government is showing interest to develop the country They have rules and law for zero tolerance of corruption. It makes the country a suitable place to grow their business. Moreover, zero corruption brings work atmosphere |
|
Economic |
The GDP estimated per capita as in 2013 is $1592. Country’s main economy is based on natural resources and agriculture. Coffee and tea are the two major production Tourism is rapidly growing in the country with high return Industrial contribution as on 2010 was 14.3% of the total GDP GDP growth rate is 8% as mentioned in the World Bank report 2011 Exchange rate is low that attracts the foreign investors. The country represents one of the highest GDP growth rate among he African economy and the neighboring countries |
|
Social |
The target market is comprised of 11 million people with a rapid growing middle class The potential market is of over 125 million Rwanda has a unified social body from the pre-colonial era The number of the middle class people is rapidly growing The government’s encouragement in education shows clear response. People are sending their children to school after the education system is made free. However, the lowest segment is still reluctant to send their children to schools as they can even afford the uniforms for their children Incorporation of ICT into the educational sector in Rwanda provides ample scopes for the industry under study to do a profitable business in the country. |
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Technological |
The country has the fastest broadband internet in Africa The electricity of the country is completely generated from methane gas and hydro-electricity. The vision of the government is to build develop ICT park before 2020 The country have reliable utilities like water, sanitation and power Proper transport facility developed to connect to the airport through railroads and highways. The skilled resources of the country are accountably low. With the help of private companies, the government seeks to train its citizens and speed up the development process |
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Environmental |
The country has underwent serious changes to present it as a business friendly environment The hilly topology of the country might impose hurdle in transportation of goods around the country. Main energy source of the country is the hydro-electricity, which enables the investors to maintain their sustainability approach in business. |
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Legal |
The government policies or Rwanda is favorable for doing business in the country. Their FDI policies is made such a way to attract the foreign investors for the development of the country The constitution has much flexibility for the foreign companies to operate within the boundaries of Rwanda without facing any kind of issue. Entering the market is easy as the tax incentives are made favourable for the investors. For example, Positivo BGH is one of the company that entered the market in last few years ease without facing any trouble. Their anti corruption policy provides an work environment for the investors |
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Power of Supplier |
The power of the supplier is comparatively high than the power of the power of the buyers. It is due to the low competition in the market. There is only a major challenge in the market that is Positivo BGH. Apart from Positivo, there is no as such threat for the company. However, the low-income rate of the target customers might play a significant negative role for the company and might lose the bargain power to sustain in the market. |
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Power of Buyers |
The power of the buyers is low as there is not much competition in the market. However, low income of the population will play as a positive role for the customers to bargain over the price to make it affordable. |
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Threat of New Entrants |
Threat of new entrants remain high as the FDI policy and incentive policy offered by the country is attractive and will surely lure many competitors to seek profit out of the situation. |
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Threat of Substitution |
Substitution chances are considerably low as their sole competition in the market will be Positivo BGH. |
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Intensity of Competition |
The intensity of the competition is considered low, as there is not much of ICT development took place in the country. However, the primary rival of ARTS, which is Positivo BGH has already entered the market which makes them an important competition in Rwanda |
The government of Rwanda has undertaken reforms in a series of pro-investment policies over the past decade for rapid economic growth. According to the Word Bank’s business report, the country enjoys a strong and stable economic growth. Rwanda opened up a number of opportunities for the U.S. and other foreign direct investments that includes energy, agriculture, infrastructure, tourism, mining and information and communication technology. The government made suitable environment for the investors by lifting statutory limits on foreign ownership or control and abolishing discriminating official economic or industrial strategy. The investors face no difficulties in obtaining foreign exchange in Rwanda or transferring funds associated to the investment into a usable currency (newtimes.co.rw. 2017). However, the companies face skilled labour shortage in the sites due to the low standard education in the country. However the education system of the country is rapidly developing. The country has also established a free trade zone outside the capital that has a current and planned future communication infrastructure. Despite the friendly FDI policies, Rwanda lags well behind the neighboring countries as the investors face trouble visa renewals and the skilled employees fail to enter the market for potential growth (state.gov. 2017).
The tax incentive policies of the country are excessively favorable for the companies to enter the market. According to civil society organization the countries tax incentive policies will eventually lead to inclusive development and curb unfair competition among the business and suggested to reform their policies and only the multinationals in key priority areas should taken into consideration. There is no clear monitoring mechanism to hold accountable multinationals to the term under which the incentives are being offered by the government. It is leading the local competitors to bankruptcy, as the exemptions are unclear and unequal for the investors. Butare is the head of the programs and policy at ActionAid Rwanda. He has expressed concern regarding the current tax incentive policies of the country. According to him, government should take a strategic incentive policy for the long-term solution. He mentioned that, not all the incentives are harmful, however the government should have reasonable incentives and in priority areas which have multiplier effects and leading to inclusive department (newtimes.co.rw. 2017).
PESTEL
The motivational factor that is playing an important role for ARTS to enter the market is to compete with the Positivo BGH. CEO of ARTS claims that, the CEO of Positivo BGH has copied his design and doing business in the market of Rwanda. This is a case of rivalry between the companies, which is the primary motivational factor for ARTS to enter the market. Moreover, the ICT market of Rwanda is still now untapped and there is not much of competition, which is also a motivational factor for the company to consider the entry (newtimes.co.rw. 2017). The FDI policies and incentive policies of the country can also be an important player for the motivation.
|
Variables |
ARTS |
Positivo BGH |
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Product Name |
GT80S Titan SLI 18.4in Core i7 Notebook |
|
|
Processor |
Intel i7 6920HQ CPU |
Intel Celeron N2840 |
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Platform |
Inter i7 |
Bay Trail |
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RAM Memory |
3 GB DDR4 |
2 GB |
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Storage |
1 TB |
320 GB |
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Screen Size |
18.4” |
11.6” |
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Camera |
1Mpx |
1Mpx HD |
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Graphics |
NVIDIA GeForce GTX980M Graphics in SLI |
Intel HD Graphics; DirectX 11 |
|
Audio |
Dynaudio 7.1 Audio |
High Definition |
|
Ports |
1x HDMI 1x Mini Display Port 5x USB 3.0 1x USB Super Port Type-C |
VGA y HDMI |
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Memory Reader |
9-in-1 memory multi reader |
9-in-1 memory multi reader |
|
Security |
– |
Kensington port |
|
Operating System |
Windows 10 |
Windows 8.1 Pro |
Above comparison of the products shows that the laptop offered ARTS is far greater than the one offered by Positivo BGH. Positivo BGH lags in the specifications of the laptops offered in Rwanda. However, this can also be concluded that the product price of ARTS will be much greater than the products of Positivo BGH. The production cost of ARTS is far greater than Positivo, which will not fulfill the market demand. The next table shows the purchasing power of the countries, which is well below the product, price of ARTS (positivobgh.com. 2017).
|
Variables |
Rwanda Domestic Market |
Western Market (Australia) |
|
Purchasing power |
$2216.90 AUD |
$44,743 AUD |
|
GDP per Capita |
$700 USD |
$54,480.82 USD |
|
Government Debt (GDP) |
37.6% |
73.70% |
|
Average annual wage (gross) |
$22980.06 AUD |
$ 81,624 AUD |
|
Estimate Inflation |
7.2% |
1.9% |
|
Size of the target population |
11.92 million |
24.13 million |
The market analysis of both the countries shows a clear gap between GDP. It can be considered from the analysis that Rwanda is still developing country whereas Australia has obtained the level of optimum development (worldbank.org. 2017; data.oecd.org. 2017). The purchasing power of the target market is lower than western market. It also indicates that the products made in Rwanda will cost much lower than any western market, which can increase the margin of profit for the company (databank.worldbank.org. 2017; oecd.org. 2017). It will also contribute in the development of the country, as the labors will be trained accordingly to fulfill the criteria. It will increase the GDP and per capita income of the country (worldbank.org. 2017).
Rwanda is a rapidly developing country and probably growing faster than any other neighboring countries in Africa. They have overcome the mass genocide that took place in the year 1994 and presenting potential growth. The political power of the country is focusing on the development in industrial sector, for which they are also considering their educational system as it is necessary. They are now providing free education in the primary school level for the students. The government also seeks to incorporate the information and communication technology in their primary school. For the above purposes, the government follows strict zero corruption policy that reflects in their rapid growth in the past decade. The special economic zone of the country that they developed in recent years to support the industrial development of the country is well structured and planned (intracen.org. 2017). The country’s electricity is mainly generated from hydroelectric plants that are environment friendly. It will supplement in the process of sustainable development. The country’s Foreign Direct Investment policy made lucrative to attract the foreign industries specially the U.S. industries to start their venture is Rwanda. The government set no as such statutory limits for the investors, which is an advantage for the industries to extract maximum profit. The work force required for the production has to be taken from the country itself, but the qualification of the people lacks considerably. For this, the companies are allowed to use their own experienced work force for the startup and train the local people to later fill the ranks of the factory. The tax incentive policy gives excess advantage to the investors that might impose serious threat to the country.
Five Forces Analysis
However, concerns remain for ARTS for extending their venture in Rwanda. They can be considered as primary threat for the company in carrying out operation in the country. Positivo BGH is the first visible threat for the company as they are the direct competitors in the given market. Positivo has already started their venture in the given market and started their production and distribution. On the other hand, it will take time for ARTS to acquire their license and establish their business in Rwanda (theeastafrican.co.ke. 2017). Hence, it can be challenging them to compete with Positivo BGH. Moreover, the product line proposed by ARTS is quite expensive compared to the product of Positivo BGH. The competitor company is providing cheap computers to the school market that is affordable for the consumers. Purchase power of the people of Rwanda is poor comparing to the western countries such as Australia. Hence, the product line proposed by RTS will likely fail to mark any impression in the market. However, they will provide a much better product with high configuration, the purchasing power of the people will restrict the company from making profit out of it. It is because of the annual wage of the average citizens that is considerably low compared to the western countries. Though their GDP is rapidly increasing, there is a lot of ground for Rwanda to catch up. On the other hand, the company will enjoy the bargaining power to some extent as there are few companies operating in the country.
Conclusion
In the conclusion, it can be stated that there is ample amount of opportunity for ARTS to initiate their venture in Rwanda. The infrastructure of the country is under development, which makes it a perfect market for them to do business. They will get cheap labour force that can increase the profit margin of the product line considerably. The FDI and the tax incentive policy of Rwanda shows considerable advantage for the company to expand and utilize the resources of the country. However, the purchasing power of the country comparatively low which will be a challenge for the company to make profit out of the market. The pricing of the product is relatively high while compared to the purchasing power of the target population. In order to expand their business in Rwandan market and make considerable profit competing the rival company Positivo BGH, they will have to price their product near somewhere to Positivo. They can reduce the specification of the product, but the product has to be available for the target population. However, they can manufacture two types of product in the target market to balance their profit. It will be rise for them to manufacture two-product line under the same name. The cheaper one with low specification should be for the Rwandan target market and the mentioned one for the western countries like Australia where the purchasing power of the population is high enough to attract the customers. This way, the company can utilize the cheaper work force and make maximum profit out of it.
References
databank.worldbank.org. 2017. Purchasing power parity. [online] Available at:
https://databank.worldbank.org/data/download/GNIPC.pdf [Accessed 17 Sep. 2017].
data.oecd.org. 2017. Australia OECD. [online] Available at: https://data.oecd.org/australia.htm [Accessed 17 Sep. 2017].
intracen.org. 2017. special economic zone. [online] Available at:
https://www.intracen.org/uploadedFiles/intracenorg/Content/Trade_Support_Institutions/Major_events/World_Export_Development_Forum/_WEDF_2013/KSEZ%20brochure.pdf [Accessed 17 Sep. 2017].
newtimes.co.rw. 2017. Positivo Chief. [online] Available at: https://www.newtimes.co.rw/section/article/2014-11-26/183436/ [Accessed 17 Sep. 2017].
newtimes.co.rw. 2017. tax incentive. [online] Available at: https://www.newtimes.co.rw/section/article/2016-06-08/200591/ [Accessed 17 Sep. 2017].
oecd.org. 2017. Rwanda OECD. [online] Available at: https://www.oecd.org/dac/effectiveness/Rwanda%205.pdf [Accessed 17 Sep. 2017].
positivobgh.com. 2017. 11 CLE2-R. [online] Available at: https://www.positivobgh.com/africa/education/Products/view/2 [Accessed 17 Sep. 2017].
state.gov. 2017. 2015 investment climate Rwanda. [online] Available at: https://www.state.gov/e/eb/rls/othr/ics/2015/241716.htm [Accessed 17 Sep. 2017].
theeastafrican.co.ke. 2017. business license. [online] Available at:
https://www.theeastafrican.co.ke/Rwanda/Business/Firm-gets-licence-to-make-laptops-in-Kigali-/1433224-2539226-ppwrc3z/index.html [Accessed 17 Sep. 2017].
worldbank.org. 2017. Australian GDP. [online] Available at:
https://data.worldbank.org/country/australia [Accessed 17 Sep. 2017].
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