Socio-Economic and Political Environment in Ethiopia - Coursework Example

A). Socio-economic and political environment in Ethiopia Ethiopia is one of the poorest countries in the world (Rahmato & Assefa 2006, p.24). This is mainly because majority of its population is dependent upon agriculture as the main source of livelihood. However, the government has not put enough measures to develop the socio-economic situation of Ethiopia in order to eradicate poverty. First, Ethiopia is challenged by biophysical and water management issues. Challenges of water management are numerous thus affecting the ability of the country’s population to receive clean water for their use. Agriculture and any other economic activity such as tourism cannot thrive in a society that does not have efficient water management strategies. Challenges related to water in Ethiopia have persisted for several decades now. Management of water resources is the only way to meet the growing needs for agricultural products soas to help reduce poverty and food insecurity. Further, water can be used as an important entry point to bring development in the social environment and economy thus leading to sustainable development (Gabre-Egziabher 2007, p.67). Ethiopia is also challenged with several civil wars. Ethnic communities have been fighting each other over the scarce resources in the country. The civil wars have also been linked to poor governance because there are numerous corruption scandals affecting the delivery of services to all ethnic communities. As a result, wars between communities have emerged. This level of insecurity cannot allow the smooth flow of tourists in the country (Kiros 2006, p.212). Due to mismanagement of water resources, Ethiopia has witnessed one of the worst droughts in the world. Human beings have died due to famine which prompted the international community to intervene and save the citizens from the great famine of Ethiopia that occured in 1986. Drought cannot allow any agricultural activity to take place, which is why food prices continue to be highin the country . According to the United Nations, Ethiopia is one of the countries that depend on relief food for its population’s survival (Brems & Beken 2008, p.129). Any investment in the tourism sector needs adequate infrastructure such as good road and railway systems. In Ethiopia, there are no adequate roads that can easen the movement of tourists from one region to another. The road networks as well as the rail systems are underdeveloped. The movement of tourists from one place to another cannot be easy in such a situation. In addition, there are no adequate airports that can provide air transport to various tourist attraction sites in the country (Asfaw 2006, p.48). In relation to security, Ethiopia does not have the right security personnel equipped with modern technology to identify terror threats. Terrorism continues to be one of the challenges affecting tourism. Without guaranteed security, there can never be any benefit arising out of the industry. In addition, the numerous ethnic conflicts are also not suitable for tourist visits to the attraction sites (Asfaw 2006, p.48). The weak and developing justice system does not provide procedural guarantees including legal aid, an appeal system, fair trial and equity before law. Despite these issues being given priority in the constitution, their implementation is still a challenge. The unreliable justice system is not friendly to potential investors in the country. Furthermore there is a severe shortage of trained legal staff meaning that potential investors and players in the tourism sector lack confidence in the delivery of justice (Gabre-Egziabher 2007, p.67). Political repression is a major challenge to the citizens of Ethiopia. The ruling party EPRDF has continued to trample on the rights of the citizens. Opposition leaders are not given a chance to air their grievances concerning the illegal dealings and scandals in the government. The government has punitive legislative laws aimed at the press and the civil society. The main aim of the government is to affect the activities of the opposition groups to hold rallies where citizens can discuss issues affecting them (Gabre-Egziabher 2007, p.67). B). International marketing theory: theory of absolute advantage According to Peng (2010, 150), the theory of absolute advantage was put forward by Adam Smith in 1776. The theory states that a country has absolute advantage over others if it can use the available resources to advance in international trade. Ethiopia has several tourist attraction sites thus making it suitable for tourism and hospitality investments and marketing. Some of the tourist attraction sites in Ethiopia include: the Simian Mountain National Park which hosts special species of baboons known as the Gelada Baboon and the rare Simien Fox; the rock-hewn churches of Lalibela among other attractive sites. The country has potential to have absolute advantage over other countries in Africa to become a tourist destination country. Despite the potential of the country in the tourism sector, the challenges of insecurity are not favorable for international tourism. A move to invest in the sector would result in lose because no tourist would want to travel in a country that can be attacked by terrorists any time. In addition, the constant civilian conflicts are not suitable for international tourism. Security is the most important factor that any tourist destination must guarantee. However, Ethiopia lacks adequate security to counter the threats of international terror groups such as Alkaeda (Gabre-Egziabher 2007, p.57). Mismanagement of water resources and the drought will affect tourism. These are challenges affecting country since the majority of the population cannot have clean water for their use. Tourists will be affected by lack of water and favourable climatic conditions in Ethiopia. Drought regularly affects the country and high temperatures are a common phenomenon, two factors that are not favorable for international tourism (Gabre-Egziabher 2007, p.57). Further, the country is challenged by food insecurity. The scarce water resources and drought do not allow agricultural activities to thrive in the country. Food prices are always high thereby affecting the potentiality of tourism market. Hotels and other restaurants have continued to charge high prices on food. A food secure country is capable of attracting more tourists (Awulachew, Erkossa & Balcha, 2008, p.5). Ethiopia does not have well developed infrastructure to encourage or facilitate investment in the tourism and hospitality market. A move into Ethiopia would mean lack of adequate transport means for tourists. Also, the companywould not have an efficient means of providing efficient services to the tourists. The country also lags behind in the communications sector. The Internet and other means of communication such as telephone and email are underdeveloped in the country. Tourists can only thrive in international markets where communication means are advanced (Awulachew, Erkossa & Balcha, 2008, p.5). In the above bar chart, it is clear that investing in Ethiopia would bring several challenges to the company because the country has the lowest number of tourists compared to other countries in Africa. In Africa, about 6% of international tourist arrivals are recorded. In respect to other countries, Ethiopia’s arrival numbers are very low. The figures are at 0.6 % of the African total out of some 50 million tourists in 2006. Q2. Companies are faced with a number of challenges especially when deciding on the best way to go global and enter untested territories in foreign markets. Some of the questions that must be answered before making such decisions are what is the safest way? What is the most practical way and what is the most profitable way? Every company must be able to tackle these issues effectively when putting its strategies to enter a new market. There are several entry methods that a company may adopt when entering a new market. Franchising and the Internet are some of the methods used by companies when entering an international market (Yip 1982, p.85-91). However, before a choice as to which method to employ is made, it is imperative that the company put into consideration the political and economic status of the country to invest in, the level of technological development and communication system, the cultural aspects, laws and regulations governing that country and the capital requirement (Kemmer and Ehnert 2008, p.14-36). Franchising Franchising is one of the modes of entry that has been widely used as a rapid method of international expansion. The method has most notably been used by fast food chains, business services and consumer service businesses such as car rental and hotel (Voortman 2004, p.56-61). A franchise is an ongoing business relationship in which one party (franchiser) grants another party (franchisee) the right to distribute services or goods using the franchisor’s brand and system in exchange for a fee (Hoy & Stanworth 2003, p.6). It is reported that franchising facilitates rapid expansion of markets using the intellectual property of the franchisor and the capital as well as the enthusiasm of a network of owner operators (Boswell 2005, p.4-8). A more advanced franchise arrangements usually specify the business format, which the franchisee is expected to operate the business and ensuring that a common customer experience throughout the network. Some of the features of franchise business are: An exclusive territory for every franchisee Group purchasing arrangements Group advertising programs Assisting the franchisor with specifications of equipments, selection of site and premises fit-out as well as signage Initial and ongoing support and training from the franchisor. Advantages of Franchising a) There is opportunity to enter an international market with significant capital expenditure b) New consumers and markets are exposed to the business and the fact that consumers can identify the company using the franchisor’s trademark c) Company can gain income from royalty payments made on the gross sales of the franchisee d) The franchisee bears all the responsibilities related to barriers to entry, compliance issues, and foreign market volatilities e) The franchisor only sets minimal standards of performance on products and services offered and have its products provided exclusively. Disadvantages of Franchising a) A franchisor is changed with responsibility of providing the marketing, training and other necessary support continuously to the franchisee b) The franchisee’s business is exclusively identified by the franchisor’s trademark. This implies that a bad franchisee can point the finger at the franchisor c) A franchisor has a lot of considerable and lengthy regulations with which to comply with respect to franchise disclosure. d) A difficulty exists with regard to adapting the franchised brand or asset to the taste of the local market. The Internet Portal or e-business has grown over the years as a preferred entry method to the international markets for many companies (Le & Rothlauf 2008, p. 4-11). This is due to the fact that the world has seen immense growth of connectivity in terms of networked computers and phones. Using electronic means, such as the emails, web pages, file transfer and other related communication tools, companies have began entering foreign markets without touching down. To do this, the company has to connect a server to the Internet and open up a website with which it can connect with any person anywhere around the world. Industrial buyers and consumers who use the Internet can search for products, companies, services and even purchase products online (Zekos 2005, p.56-63). For instance, the company in London will not have to physically establish itself in Ethiopia since it can transact its business online through the Internet. Advantages a) It eliminates the many huddles that plague small businesses from competing beyond the borders b) Using the Internet is cheap in terms of cost Disadvantages a) It does not involve physical contact b) It is much dependent on availability of computers and electronic devices which may limit its effectiveness especially where computers are not available Based on the overall political and economic status of Ethiopia, Franchising will be the best entry method for the company. Rothaermel et al. (2006, p.59) note that the overall country risk in a foreign market is dependent on the economic and political risks. The political risk of a country indicates the possibility that the political forces, which are more than often a reflection of underpinning societal tension and unrest, can drastically change a country’s business climate that may prove detrimental to the interest of foreign business (Cosset and Roy 1997, p.135-142). When this goes to the extreme, the changes in the business climate may result into expropriation of foreign assets as witnessed by U.S companies after the Iranian revolution in 1979. The fact that most legal institutions in Ethiopia are not sufficiently developed to curb political and economic risks hampers the development of e-commerce markets as trading partners have no efficient resources to financial or legal institutions should cyberspace break down of transactions (Davidson 1980, p.8-13). This leads to rampant identity theft and credit card frauds as has been in Ethiopia in recent years. These rules out use e-commerce as good entry method to Ethiopian market by the company. Internet is not preferable also because Ethiopia is still very much underdeveloped and very few institutions has fully adopted the use of computers. This means that relying on the Internet will not be favorable with regard to socio-economic status of Ethiopia (Kemmer and Ehnert 2008, p.91-98). As such, the company will have to rely on franchising which also have the advantage of consumers will be able to identify the company using the franchisor’s brand and trademark (Paul 2008, p.102-114). 3. a). Low income/less developed countries exhibits certain characteristics common to all. This includes: Low income per capita The per capita income for less developed countries like Ethiopia is extremely low. A survey conducted by the United Nations committee for Development planning recently established that less developed countries like Ethiopia, India and Pakistan is about $130 per head as compared with The US $6640. This leads to widespread poverty characterized by low living standard of the people in these countries (Raul 2012). In most cases, more than 50% of the population leaves below poverty line. Ethiopia for instance is grouped as one of the poorest nation in the world according to UNICEF and United Nations. Out of a population of approximately 80 million persons (2008) about 35 million are leaving in abject poverty (Finance Maps of World 2012). These amounts top about 44% of the population leaving below poverty line. The survey also went a head and revealed that close to 12 million persons in Ethiopia are chronically food insecure. Overreliance on Agriculture Majority of less developed countries depend mainly on agriculture both for subsistence and commercial purposes (Fernando 2011, p.184). In such countries, more than 60% of the citizens depend on farming, herding and fishing. Ethiopia for instance, about 70% of the entire population depend on Agriculture (Mwanakatwe 2010, p.7-9). The Oromo people that contribute more than 40% of Ethiopian population are mainly pastoralists. Apart from the fact that these countries over rely on agriculture, strangely the agricultural techniques used are so primitive, antiquated and inefficient. High rate of population growth and Mortality Most underdeveloped countries experience high rate of population growth (Tri, H.C. n.d). Ethiopia, for instance, experiences high population growth according to the 2008 census report. The population has increased from about 60 million to 80 million in a span of five years. Despite the high increase in population, these countries also experience the highest mortality rate. This implies that they have very low life expectancy compared to the developed countries like the UK and USA. High rate of Unemployment Developing countries have the highest rate of unemployment. A survey reveals that these countries experience high unemployment rates in urban areas and disgusting unemployment rates in rural areas (Raul 2012). In such economies, more and more people are released to work on farms since alternative employment opportunities are not enough to absorb the surplus population. This implies that more people are forced to work on agricultural farms. The unemployment rate in Ethiopia for instance, is estimated at 21%, which is the sixth highest in the world. This makes it ranks at position 69 in terms of affordability of basic commodities such as food, shelter and clothing. Low Level of technology and skills Most underdeveloped countries in the world have low levels of technology and skills (Raul 2012). As such, they employ very primitive methods of production as well as inferior and less productive technologies. It is the poor techniques and lower skill employed in these countries that result into the general high poverty level (Fernando 2011, p.184). Ethiopia for instance has been found to be one of the countries that still lag behind in terms of technology (Mwanakatwe 2010, p.7-9). As such, the country has very few skilled personnel to do the work. This is contributed by low levels of education still e experienced in the country. Other characteristics associated with less developed countries include high level of corruption, economic backwardness, foreign trade orientation, and overreliance on donor funding as has been the case with Ethiopia 3.b). A marketing mix for international markets should be developed; marketing managers should not simply depend on the products designed for the domestic market to be sold in the international market. International operations are always different from domestic operations. The marketing mix must be based on marketing research on the specific country, in this case, Ethiopia. All the marketing mix elements must be considered when accessing issues that are at stake in Ethiopia considering these factors in the context of international marketing (Czinkota & Ronkainen, 2007, p.136). On product, the company must consider whether to invest for the Ethiopian domestic tourists or to international tourists. In addition, the company can chose to modify its services to suit local Ethiopian demands, standards and regulations that are in line with the international market. With the level of poverty in Ethiopia, providing hospitality and tourism services for the local Ethiopian market may not be profitable. In addition, international tourists may decide not to travel to the country due to high levels of insecurity. Further, the product or service to be sold may experience problems of culture. Countries that have similar culture such as Western Europe countries have less marketing problems due to similarities in culture and language. Selling the product in Ethiopia is challenging due to differences in language and culture (Czinkota & Ronkainen 2007, p.136). Price: investing in Ethiopia depends upon the price levels the company wishes to charge tourists (Paul 2008, 74). The decision on the chosen market, Ethiopia, depends upon how price will contribute to the overall marketing mix. The company must consider other costs of operations in Ethiopia that may make business expensive such as tariffs and logistics costs. In addition, there is likelihood of the company extending credit for services offered to customers in unfamiliar overseas markets than those of domestic markets. Promotion: the company must also consider opportunities available in Ethiopia such as media advertising and Internet marketing (Morschett, Schramm-Klein & Zemtes 2010, p.16). The availability of media marketing and Internet marketing technologies are important consideration in choosing the right market to invest. Factors such as costs and the language must be considered. In Ethiopia, the media marketing and Internet marketing technologies are not developed; the company will have to spend more in advertising costs thus leading to financial loses (Haberer 2010, p.36). Place: this the most important factor to consider while choosing an international market (Mueller 2011, p. 51). The company can to choose to offer its services in Ethiopia through direct representation or through a distributor. In cases whereby the marketing officer decides to use direct representation, the method can prove to be expensive because of the costs and expenses when the representative is to live in Ethiopia. In addition, there is also the problem of culture, the representative might find it difficult to adapt to the culture of Ethiopian people (Brady 2010, p. 14). References World Bank 2008, World Development Indicators, World Bank, Washington, D. C.. Rahmato, D. & Assefa, T. 2006, Land And The Challenge Of Sustainable Development In Ethiopia: Conference Proceedings, African Books Collective, Addis Ababa. Kiros, F. 2006, Enough With Famines In Ethiopia: A Clarion Call, Tsehai Publishers, Addis Ababa. Gabre-Egziabher, T. 2007, Decentralization In Ethiopia, African Books Collective, Addis Ababa. Brems, E. & Beken, C. 2008, Federalism And The Protection Of Human Rights In Ethiopia, LIT Verlag Munster, Munich. 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