PESTEL Analysis for Rwanda - Case Study Example

Assessment Task 2 – Quantitative Literacy Case Study Section Name: Institution: Date: PESTEL Analysis for Rwanda Political Factors The government of Rwanda have provided a conducive environment for business with the security and infrastructure promised High level of political stability with well-functioning institutions No toleration to corruption Economic Factors A favorable economic growth of 8.8% annually Lower and stable inflation and interests rates The purchasing pow of the Rwandese is lower or high end products Social Factors Limited skilled population A lower population of about 11 million Rwandese The social structure is well-established The purchasing power is relatively lower Technological Factors The technology level in Rwanda is very low The internet access is low averaging 13% in 2014 The Internet networks is based on 3G network No world-class technology in Rwanda and most will be imported No technical know-how in Rwanda and the skills technical skills are imported Legal Factors Favorable legal environment provided in Special Economic Zones Conducive infrastructure guaranteed in the SEZs but it is not yet developed fully Safety regulations are not extreme but established on global standards Employment laws require the international companies to import top level skills as they embark on training domestic workers Environmental Factors Already provided land for the manufacturing firms with little environmental concerns like nearness to residence The SEZs have the government addressing environmental issues Requirements on processing of waste for the general waste treatment system Incentives to Enter Rwanda Special Economic Zone In order to make the business possible for companies to operate in Rwanda, the SEZ provides numerous incentives to the domestic and international companies that operate within the SEZs. Among other incentives that are provided by the government of Rwanda include liberal and simplified economic regulations. The companies operating within the SEZs are given the tax reforms that allow them to compete favorably. All products are treated as exports to allow the companies have better terms. Other incentives are physical including guarantees on reliable utilities that include power, water and sanitation (RDB, 2015). There are also the storage and warehousing facilities. He ICT infrastructure is also developed by the government as incentives. The government also undertook to provide office space to the organizations that will set their business at the SEZs. The other incentives include the setting up of onsite and offsite roads as well as links to airports and main roads (Kisambira, 2014). For the infrastructure developed by private individuals and companies, they are absorbed by the government of Rwanda after a given time to facilitate the maintenance (Beaumont, 2010). The environmental concern incentives are also provided with the government providing facilities for waste management. The firms are only required to provide the waste processing. There overall ease of doing business has been improved in Rwanda especially in the SEZs to encourage more business and the slots created for the firms are almost under pressure now. Current Foreign Investment in Rwanda The Foreign Direct Investment in Rwanda have increased in the recent years because of political stability and measures the country has taken to improve the business climate. Nevertheless, the FDI figures remain low partially because of the political instability of the neighbors like Democratic Republic of the Congo and Burundi. The low level of human resources, poor quality of infrastructure, high operating cost, landlocked state, high operating costs, limited natural resources and social characteristics of the Rwanda demography also have played a role in limiting the level of foreign direct investment. However, the government has played a big role in improving liberal policies and making Rwanda a trade and services hub. In 2015, the country launched a new investment code that was meant to attract Direct Foreign Investment in tourism, technology, and energy. In these changes, the investors will not be allowed to invest a minimum of $100,000 to gain access to the industry. In 2015, the country also hosted the China-Africa Business Forum and this was used to boost the foreign direct investment. Other major economic reforms and the government deals with foreign private companies continued to grow in the year 2016 and this helped grow the foreign investment in Rwanda. As a result of these decisions by the government, the foreign direct investment in Rwanda has shown encouraging growth. The foreign direct investment (FDI) Inward Flow grew from $258 in 2013, to $459 M in 2014, to $471M in 2015. The FDI Stock was $837.7M, $1,152.3M, and $1,183.3M in the years 2013, 2014, and 2015 respectively. ARTS Motivation to Enter Rwanda There are a variety of motivations that have motivated ARTS to enter the Rwanda market. The major motivation is for the competition purposes with the Positivo BGH. This is expressed because, the two company CEO have been competing since they were in College and now that Positivo BGH established its plants to produce laptops in Rwanda, ARTS want to counter this move for competition purposes. The other motivation is to take advantage of the favorable environment for business in Rwanda as provided in the Special Economic Zone (SEZ) in Rwanda. The SEZs initiatives provides incentives for the companies that wish to start business in the country. Some of the benefits include the provision of reliable support services like the energy, sanitation, and other resources. The government has also offered to give the investors other economic advantages like the liberal marker and tax benefits (Gahigi, 2014). ARTS also wish to take advantage of favorable business environment that is provided by the stable political environment, efficient and working institutions, and a growing middle income population in the county. The growing population and the access to markets in the East Africa Community through Rwanda is another factor that could be motivating ARTS to set up its base in Rwanda. Threat of New Entry There is moderate threat of new entry because of the market limitations and underdeveloped infrastructure Not very attractive to new firms The market characteristics are not enticing for new firms because of low purchasing power and lack of technology know-how Resources required for entry including training are too high for entry Competitive Rivalry Competition is only from Positivo BGH Imports from other companies like HP, Toshiba pose a competition threat No other players with the same advantages as Positivo BGH Buyer Power The buyers have relatively low purchasing power The power already secured by the government There is little ability to substitute Supplier Power The number of suppliers is limited The suppliers compares favorably with ARTS There are no similar products Little ability to substitute Threat of Substitution Relatively low threat of substitution The only major threat is imports but they do not have comparative advantage No cross-product substitution Comparing and Contrasting Arts and Positivo BGH Product Lines ARTS Positivo BGH Gt80S Titan SLI 18.4in Core i7 Notebook XO 10in laptops High-Tech devices Relatively cheap devices Very expensive for Rwandans Not expensive Not energy efficient to the level of Rwandans Energy efficient devices This shows the difference in the product lines for the companies. Whereas the Positivo BGH products are tailored to address the challenges of the Rwanda economy including access to energy, little technical knowledge, and limited purchasing power. On the other hand, ARTS Titan laptop is a high-end and very technical that could make it not suitable for the Rwandans. The Positivo laptop has also be tailored to facilitate the adoption by the learners including the small size of display and the casing that could make it less fragile. On the other hand (Mwanza, 2016), the Titan is tailored for high-end consumers who could be buying for luxury and not for a primary class. This stunning differences show why one product is best suited for Rwandese market compared with the other. Return in Rwanda and Western Market Product Rwanda Western Market Cost $3792.37 $3792.37 Corporate Tax 30% 35% Returns 2654.66 2465.04 Based on tax issues, it is making sense to do business in Rwanda than in the Western countries because the corporate tax is relatively higher/. Rwanda presents another exciting incentives for the firms to take advantage of. However, considering the size of the market, the purchasing power, and the technology adoption between Rwanda and the Western markets, it implies that ARTS can be more efficient operating in Western than in Rwanda. This is because it handles high-end products with complicated technology that could make it difficult for the Rwandans to consume the product. Whereas the returns could be positive in Rwanda, the consumption of the product could be limited also owing to the suitability of the product in the Rwandan market. Recommendation The ARTS should rather venture in Western markets as opposed to Rwanda. This is because, the market for Titan in Rwanda could make it not feasible for the consumers. The Rwandans population is made up of people who are below the middle income earners. This could make it impossible for the consumers to purchase the high-end Titan. The energy consumption is another deal-breaker for ARTS. Rwanda has challenges of power distributon and this limits the consumption of highly-power dependent systems. For the case of Positivo BGH machines, they are energy-efficient and are tailored to appeal to that market with limited specification that could drain energy. In terms of specification and capabilities of Titan, the majority of the Rwandans do not have the technical know-how to use such a machine. For example, Windows 10, Blu-ray writer, NVIDIA GeForce GTX980M graphics in SLI are among other features that could prove extravagant for the common Rwanda residents. The economic feasibility of the Positivo is partly assured by the deal the company struck with the government where the government could buy some machines that could allow the company to hit the ground running. With ARTS lacking such a deal, it could prove very difficult for the ARTS to realize the returns like the Poisitivo BGH could be realizing. Therefore, I could recommend that ARTS to avoid venturing in Rwanda unless it comes up with a cheaper, and more energy efficient laptop compared with that of Positivo. Bibliography Beaumont, P., 2010. Rwanda's laptop revolution. [Online] Available at: https://www.theguardian.com/technology/2010/mar/28/rwanda-laptop-revolution [Accessed 24 April 2017]. Gahigi, M. K., 2014. Firm gets licence to make laptops in Kigali. [Online] Available at: http://www.theeastafrican.co.ke/Rwanda/Business/Firm-gets-licence-to-make-laptops-in-Kigali-/1433224-2539226-ppwrc3z/index.html [Accessed 24 April 2017]. Kisambira, T., 2014. POSITIVO chief: Why we are opening a plant in Rwanda. [Online] Available at: http://www.newtimes.co.rw/section/article/2014-11-26/183436/ [Accessed 24 April 2017]. Mwanza, K., 2016. South American Firm To Develop First ‘Made In Rwanda’ Laptop - See more at: http://afkinsider.com/129954/129954/#sthash.0B7rzBye.dpuf. AFK Insider, 20 July. RDB, 2015. Rwanda Special Economic Zone, Kigali: Rwanda Development Board. Read More