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6. What Entry Strategy should Arla Foods pursue in sub-Saharan Africa?

6.2 Where should Arla Foods enter sub-Saharan Africa?

6.2.1 Preliminary market overview

result higher income. This development we have discussed in previous sections, which is likely to boost the level in dairy consumption.

The figure to the right depicts Africa‟s economic performance compared to the rest of the world and shows a development towards growth levels of the ASEAN countries. The same countries also share a larger amount of FDI as a percentage of GDP compared to ASEAN-1980 as well as institutional

investors showing increased interest in the financial markets (Nellor 2008: 32-33). As an example of what ASEAN markets can contribute to for the development of Arla Foods‟ business, Vietnam can serve as a case in point.

Vietnam has had positive developments and has among others a rising middle class and today more than 70 Danish companies are currently established in the market (Danske Bank 2008). This is also a country where Arla Foods launched a new corporation in 2007, because many of the competitors were already present, and Vietnam has a large

population of 84 million inhabitants with a growing purchasing power and as a result the consumption of dairy products was boosted (Arla Foods 2007b)

For at further insight of the underlined SSA countries, the GDP/capita (depicted to the right), shows that in particularly Botswana stands out with a relatively higher GDP/capita of around $15,000-20,000. Ghana, Kenya, Tanzania, and Nigeria experience a GDP/capita of around $1,000 – 3,000.

Mozambique, Uganda and Zambia perform the lowest level of GDP/capita of $0-1,000. The indicator shows that particularly the countries in the Southern and Central part of sub-Saharan Africa have the highest GDP/capita rates. Despite the fact that the measurement does not show the differences within the countries, the GDP/capita can still serve as an initial indicator of how attractive the country and its customers are likely to be.

Figur 1 {{172 Economic Commission for Africa 2008/s: 22;}} Figure 17 Source: Economic Commission for Africa 2008

Figure 18

Though, as the BOP theory highlights it is not only the consumer group with the highest income that serves as potential business segments for profitable business. In this respect, also populous countries are attractive due to the sheer size of the various segments. A volume market could equal access to many potential customers with the possibility of few initial entry points and/or resources.

This is of particular interest to Arla Foods since sub-Saharan Africa is still not the subject of increased resource allocation from corporate management‟s side.

The figure to the right depicts the population size in sub-Saharan Africa, showing a high current concentration of population in especially Nigeria (148 mill.), Ethiopia (83.1 mill.) and Dem. Rep. of Congo (62.2 mill.) (Economic and Social Statistics Division of the Statistics Department 2008).

With more than 148 million people, Nigeria is by far the most populous country in sub-Saharan Africa (May 2008) and, as an obvious consequence, it attracts the attention of both local and foreign dairy companies wishing to tap into

the markets as the section of the dairy industry in SSA indicated. Yet, Tanzania, Uganda, Kenya and South Africa are also countries with a high population as the map illustrates.

Arla might generally be hesitant towards entering into markets hosting political instability and social unrest. The figure to the right illustrates the state of peace in the various counties in Africa and can give an indicator of the countries‟

status. With recent experience with political/social incidents from the Middle East and China, Arla Foods might presently be particularly cautious about taking further steps with heavy

investment, into non-traditional markets. However, it is important to mention that despite scoring low on the “state of peace” index a market might still be of interest and Arla Foods might on the other hand also be pushed into the market, due to global competition and securing its business in the long run. As an example, Arla Foods has been conducting business in Nigeria and South Africa, which are very attractive dairy markets, but are at the same time countries, which performs poorly on the peace index as the figure underlines.

Figure 19 ADB 2008

Figure 20

Addressing the up-coming markets mentioned by the IMF, Tanzania, Zambia, Botswana, Ghana, and Mozambique are characterised as states of relatively stable countries whereas Kenya, Uganda and Nigeria experience a high degree of instability. Further, countries like DRC, Sudan and Somalia are countries struck by conflicts. Most of the politically stable countries are centred in the Eastern and Southern parts of the sub-Continent (except from Ghana, Burkina Faso and Senegal, which is located in West Africa). This outlines the challenge of pinpointing specific regions with the highest potential as few poor performers in one region might obscure the whole picture for the surrounding countries (Vision of Humanity 2008).

Corruption and lack of transparency, remains one of the biggest challenges throughout sub-Saharan Africa despite progress in democratic changes (Transparency International), which is likely to be part of the reason why several firms fear to invest in the region. Though, the potential might still overcome the measurement in this index. The Transparency International‟s 2008 Corruption Perceptions Index shows that there is mixed results in efforts to fight corruption. Countries like Botswana, Cape Verde and Mauritius are the top 3 performer, which are at the same time also some of the smallest countries in SSA. South Africa, Ghana, Tanzania, Zambia, Nigeria, Mozambique, Uganda, and Kenya follows in that respectively order (of the IMF chosen countries) as the best performers. It shows that the “South” with Botswana and South Africa are the front runner with little corruption and larger level of transparency.

The countries that have been pointed out so far, have been highlighted by the IMF and/or measured based on their performances in the different indices for an opening overview. In order to sum up on the discussion as well as the general ranking and performance of the regions in SSA as a whole, the following section categorises the top 10 performing countries in SSA within PPP/capita, population size, the global peace index and the corruption index, import milk data (which was presented in the dairy industry section), and World Banks‟ ease of doing business indicators in a regional context.

By including World Bank‟s Ease of Doing Business Ranking in this preliminary summary, the assessment adds on a well-known parameter for measuring countries‟ institutional development towards creating better market conditions for doing business.

The preliminary assessment of the market potential is therefore divided into four regions: West Africa18 , Central Africa19, East Africa20, and Southern Africa21 and is depicted on the next page.

18Benin, Burkina Faso, Côte d'Ivoire, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo

19 Angola, Cameroon, Central African Republic, Chad, Democratic Republic of the Congo, Equatorial Guinea, Gabon, Republic of the Congo

Regional overview of the top 10 performing countries in sub-Saharan Africa

Indicator

Region

PPP/Capita22 Population23 Global Peace Index24

Ease of Doing

Business25 Corruption26 Milk Import statistics27 Countries

in top 10

% of top 10

Countries in top 10

% of top 10

Countries in top 10

% of top 10

Countries in top 10

% of top 10

Countries in top 10

% of top 10

Countries in top 10

% of top 10

Western 1 10 2 20 2 20 1 10 3 30 4 40

Eastern 1 10 5 50 4 40 5 50 3 30 2 20

Southern 5 50 2 20 2 20 4 40 4 40 1 10

Central 3 30 1 10 2 20 0 0 0 0 3 30

Although only providing a simplified overview of the regions within SSA, there is a tendency towards Eastern and Southern Africa being among the top-performers within the defined categories (marked in blue) to provide a good business potential for Arla. Yet, West Africa is also to be included in the following elaboration, because of its high import of milk and Arla Foods‟ stronger focus and expectations to this region. The following sections will therefore reveal whether this overall tendency towards East-, South- and West Africa fit with the ongoing trends in the individual markets and with Arla Foods‟ previous experience and capabilities.

To be noted is that Arla Foods has experience with sales to Angola (which is part of Central Africa), but as the above ranking indicates, there is not much basis for further investigation into this region at present, when compared to the potential of the other regions. Therefore, this region is, at this stage, roughly sorted out for further investigation, due to the region‟s overall poor performance.