Macrosegmentation Country Attractiveness - Case Study Example

Marketing of the of the Contents Contents 2 Introduction 3 Comparison of the countries 3 Market Potential 3 Nigeria3 Armenia 6 Tunisia 8 Political, Legal and Financial Environment 11 Nigeria 11 Armenia 11 Tunisia 12 Market Infrastructure 13 Nigeria 13 Armenia 14 Tunisia 14 Conclusion and Recommendation 15 References 17 Introduction It has been specifically observed that US based food chains have embarked on the path of aggressive expansion on a global scale. The biggest names among the U.S. based fast food industries like, Burger King and McDonald’s, have expanded overseas in last five years. This report analyzes the entry of McDonald’s in three potential markets of Tunisia, Armenia and Nigeria. So, it can be argued that if McDonalds’s can take the advantage of first mover facility in these countries, then it would be profitable for the company. This paper analyzes key variables like, GDP growth, political, legal and financial requirements of these three countries. The idea is to understand attractiveness of the market if McDonald’s chooses to enter any of these three countries. The marketing infrastructure of these three countries will also be evaluated in details for comparing their attractiveness. If the chosen country exhibits signs of volatility, then this may result in failure of the business venture. Additionally, complex financial and legal requirements increase cost of setting business in the country. Comparison of the countries Market Potential Nigeria Nigeria can be considered as the largest economy of Africa with an estimated GDP of $502 billion. In the past decade, the economy had achieved an average growth rate of 7%-8%. The table below shows GDP per capita PPP of Nigeria. GDP per capita PPP is the value of final goods and services produced in a country divided by population of that country in a specific year. Figure 1: GDP per capita PPP of Nigeria (Source: World Bank, 2014) Figure 2: Graphical Presentation of data The values from the figure are plotted in the graph above. The graph clearly shows that the level of GDP per capita PPP has increased consistently in the last decade. Higher the GDP per capita of a country, greater is its level of development. Therefore, it can be inferred that general conditions of population in Nigeria is improving from GDP growth. GDP growth rate of Nigeria is presented in the table below. The last twelve years has been considered. Figure 3: GDP growth rate of Nigeria (Source: World Bank, 2014) The graph below shows annual GDP growth rate for Nigeria. The graph indicates that GDP of Nigeria has reflected considerable fluctuations in the past decade. The GDP growth rate was exceptionally high in 2004. However, since 2004, growth rate has been slower. Figure 4: Graphical presentation of data The estimated population of the country, as of 2014, is 177,155,754. Among the total population, it has been determined that 23% of the population can be classified as middle class with average income of $480-$645. It has also been found that middle class population saves money and has shows a tendency to eat outside (Robertson, Ndebele & Mhango, 2011). The fast food industry in Nigeria is still in the nascent stage, but represents a very high scope for penetration for fast food outlets in order to obtain greater market share. KFC, Dominos and Yum have already showed interest in entering the Nigerian fast food market. The existing fast food restaurants have achieved a growth rate over 30% over last decade and the value of informal fast food restaurants are $600-$700 million dollars (Research and Markets, 2010). Armenia The table below plots the GDP per capita PPP for Armenia. Figure 5: Armenia GDP per capita PPP (Source: World Bank, 2014) It can be seen from the graph that level of GDP per capita has constantly increased over the past decade, with a little drop in 2008 owing to the global financial crisis. Figure 6: Graphical presentation of data (Source: World Bank, 2014) Figure 7: GDP growth rate of Armenia (Source: World Bank, 2014) The GDP growth rate of Armenia has been plotted in the above table. In order to interpret the data, a graphical representation has been done. Average growth rate of GDP of the country has been close to 7.38%. Figure 8: Graphical presentation of data It can be seen from the graph that the level of GDP growth had been stable before the global financial crisis. In 2009, the country experienced a massive decline in GDP. In years prior to the crisis, Armenia had exhibited a steady rate of growth. The situation had suddenly reversed during the crisis when the country started to reflect negative growth rate for the first time in previous decade. Recently, the economy is recovering as evident from the figure. The present population of the country is estimated to be 3,060,631 in 2014. Construction of middle class in the Armenian society is a rather difficult task as its definition changes with the income bracket marked by various agencies. The National Statistics Department of the country suggests that 64.2% of the population are “not poor” and can be classified as middle class (Melkumyan, 2011). The results are, however, not very reliable because some sources suggest that the middle class population is as low as 8% and others believe that it is close to 20%. The fast food market in Armenia is growing in recent times and global fast food industries like, KFC, are investing therein. However, data about size of the market is unavailable. Unlike Nigeria, Armenia does not have very strong prospects like, Nigeria, in terms of the fast food industry. Tunisia The GDP per capita PPP of Tunisia is shown in the table below. It can be seen that the level of GDP per capita PPP in Tunisia has also increased consistently over last twelve years. Figure 9: Tunisia GDP per capita PPP (Source: World Bank, 2014) Figure 10: Graphical presentation of data The graphical representation clearly indicates that despite a slight fall in 2011, values are constantly increasing, which in turn implies that purchasing power of the middle class is on a rise. The GDP growth of the country implies that there have been considerably less fluctuations in GDP in the previous decade. Even so, average growth rate of GDP is close to 4%. Figure 11: GDP growth rate (Source: World Bank, 2014) Figure 12: Graphical presentation of data The population of the country is estimated to be 10,937,521 in 2014. The percentage of middle class population is very high in Tunisia and comprises 89.5% of the population (Grail Research, 2010). The size of the fast food market in Tunisia is lucrative and is growing very fast. This could be attributed to increase in the percentage of middle income people in the country (Mhirsi, 2012). The country has become an interesting destination for a number of foreign fast food retailers due to a rapidly growing fast food sector. The middle income people of the country have been showing an increasing trend to experiment with western food (Agriculture and Agri food of Canada, 2011). Political, Legal and Financial Environment Nigeria Nigeria has often been identified as one of the most attractive countries to start business in recent times owing to efforts of the government in order to attract FDI in the country. The broad economic reforms adopted by the country are expected to impact population of the country in a positive manner. The government policies undertaken have helped to reduce external debt of the country during financial crisis. Nevertheless, corruption and complex bureaucratic structure of the country may pose a risk for McDonald’s (WITSA, 2014). The legal requirement to start a business includes registering with the Nigerian Investment and Promotion Commission. Foreign investors like, McDonald’s, have a variety of options to operate in the country in forms such as, public or private limited company, foreign company, sole proprietorship and unlimited liability company. Local incorporation of the foreign company is also essential for carrying out business. In terms of financial environment of the country, it can be said that the prospects are promising as Nigeria is experiencing growth in the fast food market. The rate of inflation in the country is 15.1% and its commercial bank lending rate is 22%. The discount rate offered by the Central Bank is 9.75%. In terms of overall rank of a country to start a business, Nigeria ranks 122 among 188 countries (WITSA, 2014). Armenia Political instability in Armenia in the period of 90’s had stabilized towards end of the 2000s. Since the recent election in the country, the government has been promoting market oriented policies to attract investments. Government has introduced favorable tax system in the country with a direct structure, particularly taking the interests of business into account. The government has also adopted liberal policies for domestic and foreign investors to boost business prospects in the country (Armenian Development Agency, 2009). Regarding legal issues in Armenia, it can be said that the country has a legal framework, which is not suitable for foreign investors to set up a business. Though the Armenian government promotes foreign investment, yet the legislative process is not transparent, thereby increasing the risk of doing business in the country. The legislation on the tax and customs of the country may pose difficulties for foreign business like, McDonald’s, as it raises the cost of business operation. Finally, the level of corruption in the country is very high, which makes it difficult for foreign business to operate (US Department of State, 2012). An analysis of financial factors in the country reveals that annual inflation is close to 9.4%. Recent monetary policy of the government has attempted to raise the rate of lending, which is likely to impact the borrowing activities of business. The exchange rate of currency indicates that the currency has appreciated in Armenia since 2003. This implies that the cost of doing business in Armenia is likely to rise for any U.S. based company like, McDonald’s. The overall rank of doing business in Armenia is 40 among the other 188 countries (US Department of State, 2012). Tunisia Tunisia is a country that is marked with high levels of political stability and low acts of political violence. The recent policies of the government have been directed at attracting foreign investments and attracting FDI. The government had initially resisted investment in the food and restaurant business, but this policy has changed recently. This can prove to be useful for McDonald’s. Regarding legal issues, it can be said that all businesses are regulated by Investment law in the country. The commercial cases in the country are settled in the court of law, but under few circumstances, they are subjected to political pressure. The current legal status of the country has shown that foreign investors have to follow 14 different steps before setting up business. The status of foreign equity ownership of the country is very simple, which makes it easier to commence business. Also, as far as land ownership is concerned, it is observed that there is no restriction on land leasing for foreign companies (Armenian Development Agency, 2009). In terms of economic factors, it has been suggested that such factors are quite favorable to start a business in the country. The GDP per capita of the economy is growing strongly and policies adopted by the government appear to favor establishment of new business in the country. The rank of doing business in the country is 70 (Armenian Development Agency, 2009). Market Infrastructure Nigeria In case of Nigeria, television and radio are observed to be the two most important sources for advertisement as they are very popular among the population. It has been estimated that 85% of the Nigerians have access to television and they rely either on cable or satellite TV. The following graph shows the ownership of television and availability of national channels in Nigeria. Internet usage in Nigeria is 49%. It has been determined that 28% of the whole population has access to the internet. Figures on advertising expenditure in Nigeria has implied that television had a share of N66,250billion and radio had a share of N22,500billion, which means expenditure is skewed in terms of television (Source: BBG Strategy, 2014). These figures imply that in order to capture the attention of audience, McDonald’s must majorly rely on advertisement through television and radio. Figure 13: Media use by numbers Nigeria (Source: BBG Strategy, 2014) Armenia In Armenia, proportions of television, internet and radio users are shown in the following graph. It is evident from the graph that American television channels are very popular in the country. Radio and internet users in the country are relatively less important. Even so, social networking sites in the country are gaining popularity in recent times. American television channels can provide additional benefit for McDonald’s for spreading awareness among customers (The American Observer, 2014). Figure 14: Media use by numbers Armenia (Source: The American Observer, 2014a) Tunisia In Tunisia, television has been observed to be the most popular media. 77% of the population greatly relies on television. Newspaper is the second most dominant mode of media in Tunisia, comprising 51% of the entire media. In case of Tunisia, 39.1% of the population has access to the internet. The following graph is a pictorial representation of data pertaining to Tunisia. Here, it is observed that the advertising budget has recorded an increase of 4.9% from the previous value of 4.5%. Similar to other two countries, in case of Tunisia too, television will play an important role in informing customers about entry in the market (AfriBiz, 2014). Figure 15: Media use by numbers Tunisia (Source: AfriBiz, 2014) Conclusion and Recommendation On basis of the study that has been conducted in this report, it can be concluded that Tunisia would be the most attractive country for McDonald’s in order to start business. There are several justifications, which can be attributed to this selection. The first section of the paper had focused on general variables for all three countries. It has been seen that GDP per capita PPP is highest for Tunisia. Though the level of GDP growth is lesser than the other two countries, yet it has shown minimum fluctuations. Secondly, strongest attribute of this country is the middle class. Tunisia has the highest proportion of middle class in entire Africa, which can be extremely beneficial for McDonald’s while entering Tunisia as primary target audience is the middle income customers. Size of the fast food market in this country is also increasing rapidly and the burgeoning middle class is improving the prospects. The second section of the paper concentrated upon political, legal and financial environment of the three countries. Briefly, it can be said that Tunisia is better compared to other two countries in this respect as well. This is because the government is allowing greater investments in fast food markets and the legal system is very robust. Nigeria and Armenia, on the other hand, has favorable investment environment, but the legal system is not quite strong and is marked by high levels of corruption. In terms of overall ease of starting a business, Armenia is considered better than Tunisia and Nigeria. However, it is seen that when other factors like, legal, economic and politics, are considered, Tunisia becomes a better choice for McDonald’s. Finally, in terms of advertising and media discussed in the third section, television and radio can be regarded as reliable source of advertisement in Tunisia. Most of the countries have shown a dependency on television. Therefore, it is inferred that McDonald’s should consider Tunisia for its further expansion. References AfriBiz. (2014). Starting a foreign business in Tunisia. Retrieved from http://www.afribiz.info/content/starting-a-foreign-business-in-tunisia. Agriculture and Agri food of Canada. (2011). Tunisia: Past, present & future Report. AAC. Retrieved from http://www5.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS-SEA/PDF/4093-eng.pdf. BBG Strategy. (2014). BBG Research Series: Nigeria – Radio and TV Still King, Mobile Internet Up Sharply. Retrieved from http://www.bbgstrategy.com/2012/08/bbg-research-series-nigeria-radio-and-tv-still-king-mobile-internet-up-sharply/. Grail Research. (2010). The rising middle class of Africa. Grail Research. Retrieved from http://grailresearch.com/pdf/ContenPodsPdf/Grail-Research-The-Rising-Middle-Class-Africa.pdf. Melkumyan, Y. (2011). The problem of middle class construction in themodern armenian society. Retrieved from http://www.ysu.am/files/02Y_Melkumyan.pdf. Mhirsi, Z. (2012). McDonald’s set up new franchises soon in Tunisia. Retrieved from http://www.tunisia-live.net/2012/01/04/mcdonalds-set-up-new-franchises-soon-in-tunisia/. Research and Markets. (2010). Fast food in Nigeria 2010. Research and Markets. Retrieved from http://www.researchandmarkets.com/reports/1524719/fast_food_in_nigeria_2010.pdf. Robertson, C., Ndebele, N. & Mhango, Y. (2011). A survey of the Nigerian middle class. Renaissance Capital. Retrieved from http://www.fastestbillion.com/res/Research/Survey_Nigerian_middle_class-260911.pdf. The American Observer. (2014). Sector overview. Armenian Development Agency. Retrieved from http://www.ada.am/files/563/publications/Precision-Engineering-Sector-study.pdf. The American Observer. (2014a). Online media considered most objective source of news in Armenia. Retrieved from http://ditord.com/2011/07/14/online-media-considered-most-objective-source-of-news-in-armenia/. US Department of State. (2012). 2012 Investment Climate Statement – Armenia. Retrieved from http://www.state.gov/e/eb/rls/othr/ics/2012/191100.htm. WITSA. (2014). Details about Nigeria’s economy, social and political indices. Retrieved from http://www.witsa.org/news/newsletter_Q2_09/img/FDI_Competitiveness_Nigeria.pdf. World Bank. (2014). Data. Retrieved from http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG. Read More