Luxury Company in the African Market - Mercedes-Benz - Research Paper Example

?Running head: LUXURY COMPANY IN THE AFRICAN MARKET 7th November Table of Contents Table of Contents 2 Introduction 3 Opportunities 4 Limitations 7 Competitive marketing strategy 9 Product 9 Price 9 Promotion 10 Place 10 Conclusion 10 References 12 Introduction The increased population in the African countries has led to an increase in demand not only for basic products but also for luxuries including jewelry and motor vehicles among others. Similarly, the gradual increase in the household income as the result of increased business and job opportunities has made majority of consumers to change their lifestyles by embarking on purchasing luxurious products. Wealth class in Africa is expanding thus making the continent a focus of luxurious companies based in foreign countries. Some of the notable countries that have continued to register increase in the number of dollar billionaires include South Africa, Nigeria, Kenya, Angola and Libya among others. Through the large investments in terms factories and farming, the wealth class has created many opportunities that have positive impact on the living standards of the middle class individuals in the rural areas. This paper seeks to discuss the entry strategies and the opportunities as well as limitations that Mercedes-Benz Company, a renowned manufacturer of luxurious vehicles would face in the Kenyan market. In its effort to enter Kenyan market, Mercedes-Benz a German based company will have adequate opportunities that will make the company achieve high sales and profits. Being one of the countries based in the East African region, Kenya population stands at 43 million people. The country headquarter is based in Nairobi with an estimated population of 6 million people in the year 2013. Based on the high demand as the result of the increase in population, wealth individuals who most of them are allocated within the city of Nairobi, the demand for luxurious products has risen (Kitching, 2011). Even though the demand for other luxurious brands such as clothes and shoes, mobile phones and electronics is high, the demand for motor vehicle brands especially among the young and old rich Kenyans has drastically gone up (Daniel, 2011). Kenyan currency in referred to as Kenya Shillings (KSH). The country GDP stands at $79,890 billion. The key sector that has contributed to the Kenyan improved economy includes tourism that contributes up to 60% of the GDP. Tourism in Kenya is the main source of foreign exchange. For example, in 2012, tourism generated more than $900 million. Other sectors that have significantly contributed to the GDP include agriculture that contributes approximately 25%, industry and manufacturing with a contribution of 15% and energy. The increased foreign currency has positively impacted on the investment in the countries thus resulting to more job opportunities. Opportunities One the major opportunity that Mercedes-Benz will face is the high demand of its brands especially by young and reach people working in the tourism sector as well those in the music industry. The improved transport system in the city of Nairobi and other towns such as Mombasa and Thika has opened investment opportunities in the city. As a result, large companies have highly invested in Kenyan capital and its outskirts. Some of the notable companies that employ large number of people include Safaricom, East African Breweries, Daily Nation Company, British America Tobacco and Delmonte Company among others. In addition to the large amount of tax the companies pays to the government, the firms have resulted to increased household income not only for the top managers but also for other employees. This implies that by establishing a branch in Nairobi and Mombasa, Mercedes-Benz will effectively meet the increased demand of its brands. Kenyan market for luxurious motor vehicle is unexploited (Aldwin, 2010). This implies that the company will not face stiff competition from other companies. Additionally, the countries offer adequate opportunities for promotion and advertisements especially along the modern and busy Thika Super high way that the government has recently constructed. Based on the Kenyan government support to foreign investors, the market has no barriers. As the country aim to achieve vision 2030, the government has emulated various attractive avenues that have seen foreign domestic investments expand. Apart from the investment conferences that the government regularly holds, the government established the Investment promotion centre that is responsible for ensuring adequate security and investment incentives for foreign companies. Apart from the power, ports and railway sectors that enjoy monopoly, any company local or foreign can freely enter other sector. The aim of the government is to create more job opportunities for large number of graduates from the public and private universities. In this regard, the government has put measures to ensure that local firms and foreign companies pay tax to the Kenyan Revenue Authority. The tax is mostly used to finance the education programs as well as to improve the health programs of the Kenyan resident. In its effort to ensure that foreign companies are provided with ample opportunities to expand their operations in Kenya, the government initiated and implemented (Government of Kenya) GOK finance bill in 1998. The bill led to the reduction of taxes paid by foreign companies to 40% while the local firms were supposed to contribute 32.5% (KENYA Investment Guide, 2013). Kenyan government highly appreciates diversity in the country. This is evident by its effort to fully remove discrimination against foreign companies in accessing government-financed research. Even though foreign investor must have work permits that take some time to process, the government does not require a lot of requirements. Another aspect that makes local and foreign investors to enjoy the support of the government and expand their activities is that the programs that are overseen by the Kenyan Government’s Export Promotion do not differentiate between foreign investor and local manufacturers. This implies that any foreign company can establish a branch anywhere in the country as long as it has the work permits and legal promotion programs. Foreign Exchange Control Act a legislations that was initiated in 1995 by the government of Kenya, removed any limitation during currency conversion as well as transfer of funds by foreign investors. This implies that Mercedes-Benz will not face any difficulty or delay in transferring funds from the parent company to its Kenyan branches or vice versa. Another essential micro-economic policy that the Kenyan government adopted in 1993 is the floating exchange rate (KENYA Investment Guide, 2013). The policy has made foreign currency to be available thus avoiding any problem in the cash inflow or outflow to the foreign company. The government has also allowed establishment of various banks that are under the regulation of the Central Bank of Kenya (CBK). While the government holds large number of shares in the Kenya Commercial Bank and National Bank of Kenya, it has allowed the establishment of other banks such as Equity bank which has the largest customer base in Kenya, Family Bank, Barclays Bank, Commercial Bank of Africa, Bank of Baroda, NIK bank and Bank of India among others. All the banks accept foreign currencies. Through the strict regulations by the CBK, the banks are professionally run thus ensuring security of the local and foreign investor’s funds. Foreign Investment Protection Act is another key legal aspect that is under the constitution of Kenya. According to this act, foreign investors are protected against expropriation. This implies that Mercedes-Benz will not be exposed to the risk of discontinuation of its operations in the Kenyan market. Foreign companies are also allowed to participate in Nairobi Stock Exchange through the local firms thus ensuring that they remain competitive and expand their capital base for expansion strategies (Kalnins, 2013). Being a member of the New York Convention of 1958, Kenya advocates for international arbitration on the issues relating to foreign investments. In this way, any dispute arising between foreign companies and the government or the local firms is effectively handled without jeopardizing the operations of foreign firms. Limitations One of the key challenges that are faced by local and foreign investors is corruption. For example, companies that are involved in importation of capital goods and inputs are faced with slow clearance of their products due to corruption especially at the port of Mombasa. However, the vice has been reasonably been handled by the establishment of the Anti-Corruption Commission that overseen accountability in the public and private sector. Major impact of the corruption is that it has led to emergence of few rich people who have the ability to purchase Mercedes-Benz brands while victims of corruption become poorer. To mitigate problems of corruption that may cause delays in the establishment of Mercedes-Benz activities in the country, it will be appropriate for the company management team to initiate an anti-corruption committee. The committee together with the local security agency will be able to deal with corrupt dealings within its areas of operations. Poverty in rural areas especially in the northern Kenya is also a major challenge while doing business in Kenya. Based on the low income level and insecurity in the northern region, majority of foreign investors are not willing to establish their branches in the country. Taking into consideration that agriculture is a major contributor to the country’s GDP, the government has taken initiative to support agriculture sector through irrigation. However, climate change is a challenge that affects rural areas thus making large number of rural areas poor. As a result, rural residents have low household income thus making them have low purchasing power for basic products as well as luxuries. Another cause of poverty in Kenya is due to the underperforming manufacturing sector thus increasing the level of unemployment. Despite the high level of unemployment especially in local towns, the government has not fully established mechanisms to deal with plight that has led to insecurity in Kenyan cities and local towns. Lack of skilled manpower is another limitation that Mercedes-Benz will face in the Kenyan market. Even though the country is the most developed among the East African countries, the quality of human resources provided by local universities is not competent enough to work in companies dealing with technologically advanced brands. This implies that Mercedes-Benz will incur high costs of training its work force as well as importing human resources from its parent company. In this way, the company cost of production is deemed to increase thus reducing the company profits in the long-term. Apart from lack of skilled man power to be hired by Mercedes-Benz manufacturing facility, the company will be faced with lack of adequate personnel to service the company brands. As a result, the company may experience disloyalty and poor relationship with local customers thus lowering its sales and profits. Despite the establishment of devolved government that entailed establishment of 47 counties by the new constitution, Kenya is faced with political instability especially in areas whose residents had different political views in the recent general election. However, after 2013 general election through the peace initiatives under the Uhuru Government, Kenyans did not engage in political unrest like the one experienced in 2007 and 2008. Even though the government has established good infrastructure system including roads and communication services, movement within the counties is limited due to poor transport system. In most of the areas roads are not accessible thus making its hard for local and foreign investors to hold their promotional and advertising activities. Competitive marketing strategy Despite the limitations that Mercedes-Benz will face in the Kenyan market, the country has more market opportunities. This implies that the company should enter and invest in the country to benefit from the growing economy. In this regard, Mercedes-Benz should emulate a competitive marketing strategy that entails the use of the 4 Ps (product, price, promotion and place) (Kotler and Philip, 2012). The 4Ps should be in line with the needs and the economic position of the local customers. Product Based on quality of Mercedes Benz luxurious models that includes A-class, B-class, C-class, CL-Class, E-class and S-calls among others, the company has created a strong positive relationship with its customers. As one of its entry strategy into the Kenyan market, the company should establish more brands such as Viano, S-class, Citan and GLA-Class that are not readily available in the Kenyan market. Mercedes Benz is a strong brand that is related to quality brands in the international market (Brian, 2011). This implies that its brands will meet a ready market in Kenya. Price Being a company dealing with luxurious brands, the company prices are high. This is due to high cost of production as well as use of modern technology that guarantees its customers security and comfort. It is important to note that since the wealth class is indifferent as far as prices of the luxuries are concerned, Mercedes Benz prices should not significantly lower its prices. By lowering its prices with a high percentage, the consumers may question the quality of the company brands an aspect that can make buy luxurious vehicles from other companies (Guiltinan et al, 2009). Mercedes Benz should give a discount of 3-4% on the initial price just as a way of attracting new customers who are loyal to the company rivals. Promotion Mercedes Benz promotional strategies are based on its knowledge of its customers. By promoting its brands in the events that its target market attends, the company has been able to create strong customer awareness in the world market. Some of the areas that the company has promoted its brands in US market includes 2012 Superbowl, Ryder Cup and during the New York Fashion Week (Kurt, 2012). In the Kenyan market, the company can promote its brands for example during the Nairobi International Trade fair occurring in the moths of October every year and during the launching of Safari rally motor vehicle competition. Additionally, the company has an opportunity of using banners indicating their new models and placing them in Thika Super highway, the largest road network in Kenya. Place Easy accessibility of Mercedes Benz brands is an aspect that cannot be overlooked. Within the city of Nairobi, the company can rent major offices where it will place its brands once they arrive in the country (Kerin, 2012). Additionally, the company will open 47 branches to be located in the 47 counties. To ensure security of the brands, Mercedes Benz will open the county based branches at the counties headquarters. Conclusion To remain competitive in the motor vehicle industry, Mercedes Benz Company should emulate market expansion strategies by entering foreign countries where its competitors are not yet established. African countries and especially Kenya offer notable markets for the company quality models. Some of the key opportunities that exist in Kenya market include high demand as the resulting of expanding wealth class, lack of barriers to entry, government incentives in terms of legislations and tax subsidies and political stability under the new government. However, Mercedes Benz is exposed to a number of limitations that includes corruption, lack of adequate and skilled manpower and poor transport system in rural areas and insecurity in the Northern Kenya region among others. Since the opportunities outweigh the limitations, Mercedes Benz will emulate effective marketing strategies by use of the marketing mix that encompasses the 4ps. In this way, the company new brands will be highly demanded by the Kenyan target market. References Aldwin, N. (2010).The Observer's Book of Commercial Vehicles. London: Frederick Warne. Brian, S. (2011). Engage!: The Complete Guide for Brands and Businesses to Build, Cultivate, and Measure Success in the New Web. London: John Wiley & Sons. Daniel, B. (2011). Kenya: Between Hope and Despair. New York: Yale University Press. Guiltinan et al. (2009).Marketing Management: Strategies and Programs. New York: McGraw Hill. Kalnins, J. (2013). Long Term Goal Setting. New York: Amazon. Kerin, A. (2012). Marketing: The Core. New York: McGraw Hill. KENYA Investment Guide.( 2013). Available from http://www.aabf.org/kenya_inv_guide.htm Kitching, G.(2011). Class and Economic Change in Kenya. New York: Yale University Press. Kotler, A and Philip, G. (2012). Principles of Marketing. New York: Pearson education. Kurt, B. (2012). Mercedes-Benz Uses Football, Fashion and the Ryder Cup To Boost Its Brands. Available from 2012. http://www.forbes.com/sites/kurtbadenhausen/2012/09/28/mercedes-benz-uses-football-fashion-and-the-ryder-cup-to-boost-its-brand/ Read More