ARTS Motivation to Enter Rwanda - Case Study Example

Strategic Management Student Name: Course: 22nd April, 2017 Table of Contents 1. Introduction……………………………………………………………………………….3 2. Background to the case………………………………………………………………….4 i. Incentives to Enter Rwanda SEZ……………………………………………….4 ii. Current Foreign Investment in Rwanda……………………………………….5 iii ARTS Motivation to Enter Rwanda……………………………………………5 3. Quantitative Analysis of the Case……………………………………………………….5 4. Recommendations………………………………………………………………………..7 6. Bibliography………………………………………………………………………………9 7. Appendix…………………………………………………………………………………10 1. Introduction A significant number of businesses are opening shop in Rwanda. This study is meant to reveal the environment of business in Rwanda for ARTS so it can enter the market and vie for customers alongside other competitors like Positivo BGH. Positivo BGH is a company that is already invested in the Rwandan market, with a market share that is heavily influenced by the government’s decision to buy many laptops in one go -100000 pieces. These will be handed over to school-going children between the ages of nine and twelve. The study will be carried out on data associated with the market sizes and sales for the already existing businesses. In addition, a quantitative study will be carried out on the market to establish if indeed, ARTS can find a smooth landing on entry into the Rwandan market. This study will find out the possibility of ARTS entering into the Rwandan market by using the PESTEL and Porter’s Five Forces Model. A conclusion and recommendations will then be made. 2. Background Rwanda is currently one among the best business destinations in Africa for various reasons. Besides being able to look beyond the devastation that was the 1994 genocide, the country has recovered quite well to come up with legislations and frameworks that make it a great destination for foreign direct investment among a host of other forms of business. The mere fact that a couple of years ago, Rwanda was able to meet the Millennium Development Goals with primary school enrolment alone meeting the set standards means that it is up for a revolutionary change regarding technological advancement. Beaumont (2010) claims that the government, through various initiatives like the Vision 2020, has instituted various reforms that will see the country move from being a mainly agricultural-based economy to a service-based one that may well stake its focus on technology. i. Incentives to Enter Rwanda Special Economic Zones There are various strategies that are in use by the government of Rwanda to ensure that foreign direct investment (FDI) is used significantly in bettering the lives of Rwandans. For example, the setting up of Special Economic Zones is a great way through which foreign investors get to earn tax relief, which will be an incentive to even plough back more of their profits and other capital to expand, where possible, into other industries besides the IT industry as corroborated by The New Times (2016). Secondly, these economic zones provide a better infrastructural backbone for investors so that they do not have to spend extra finances on trying to make their supply chain more efficient. As things stand, Rwanda can manage to offer a reliable supply chain since there are frameworks that support the basic business model that does not need the existence of middle men to flourish. As a business that deals in computers, ARTS stands a great chance of winning favour with the Rwandan government since the government has earmarked a project to build an ICT park. To make it easier for businesses such as ARTS, the government has shortened the period within which one can register a business or incorporate one in Rwanda. Obtaining the licences and (Rwanda Development Board, p. 9, 2017). Currently, obtaining the licences to run a business, together with the necessary permits to use the economic zones is easier than imagined. In fact, Rwanda, in general, is ranked as the second easiest place to do business in Africa. ii. Current Foreign Investment in Rwanda Over the last few years, the business environment in Rwanda has improved greatly. This has translated into a big flow of foreign investment in millions of dollars into the Rwandese economy. In the recent past, there may have been a few challenges with processes to register businesses, making it easier to access zones like the SEZ, where foreign investors get to conduct business with minimal issues rising from the policy. Data from Trading Economics (2017) suggests that the flow of investment into Rwanda has risen from $255.54m back in 2010, to approximately $267.7m. iii. ARTS Motivation to Enter Rwanda With a known demand base of approximately four million students who require ICT devices like laptops, One Laptop (2011) placed the demand of laptops as high, and mentioned that at least 100 workshops had been held across various schools with the intention of trying to figure out how to supply the education system and pupils at large with over 500,000 laptops over a period of five years. Gahigi (2014) demonstrates, from Positivo BGH CEO’s words, that the company has already sold over 5.4 million in its operations, and intend to use the same strategy of mass production, with the goal of attaining advantage through economies of scale, in Rwanda. This in itself points to Rwanda being a very big market for ARTS. As such, it is prudent to treat entry into the market as an urgent issue that needs great strategy. There is a lot of pride in being the first company to enable a country like Rwanda have their own local manufacturers. While Positivo BGH achieved this, ARTS may find it even more appropriate to now enter the market and start manufacturing products with better specifications. This means that they will have to offer a better machine than what Positivo BGH does offer. While it is true that ARTS has a way more superior machine when compared to Positivo BGH’s product, it is only imperative that ARTS fashions a product that will match the needs of the people of Rwanda, especially the students. There is great need to offer what the students can afford and at the same time, something that the government would purchase easily. The Rwanda government has also set goals for its citizenry. In doing so, it has offered to create channels through which the number of citizens online will increase drastically over the next few years. One of the strategies is by increasing 4G coverage. Mwanza (2016) opines that initially, the government had earmarked the end of 2016 as the period when 4G coverage would be 95%, up from a miserly 13% in the early 2000s. This simply points to the opportunity that ARTS can take advantage of and land a proper chance to grab part of the market share. The Ministry of Trade and Industry in Rwanda (2016) points to a possible establishment of an elaborate distribution channel through middlemen, who can take care of the local demand, just like they will do for Positivo BGH. These distributors can then deal with the sale of batches across the Rwandan borders in the neighbouring Democratic Republic of Congo and Burundi. 3. Quantitative Analysis of The Case The price of a simple Positivo BGH laptop is approximately Rfs 200000 ($265). This means that for the Rwanda government, there will be an average budget of about 100000 (265) – 150000 (265) annually. Ideally, this is approximately $26m annually for a period of about five years. Now that the number of pupils to benefit from the “One Laptop per Child” is approximately four million, we can sufficiently state that ARTS stands a great chance of landing a position as the second company to produce laptops in Rwanda. At four million pupils, Positivo BGH can only provide about 150000 pieces maximum annually, making it a total of about 750000 pieces in five years. ARTS stand a chance also angling to provide a share of the remaining 3250000 pieces. While it is impossible to supply all that due to regulations for suppliers, it is critical that ARTS offer a product that meets the requirements for use by pupils. As things stand, there is little likelihood that the pupils will be able to use the Titan easily. 4. Recommendations First off, it is important that, as aforementioned, ARTS produce a laptop with specifications that can be used by pupils. This is because some of the specifications may well be over and above what can be important to a student attending primary school. Such specifications are important to professionals and people who are using high specification applications that require high-spec computers that can render their work such as designs, and probably in rendering of videos by editors. Secondly, the cost of purchasing the Titan, when compared with the Positivo BGH, is way over and above what the Rwanda government may be willing to pay. Consequently, the product that should be tailor-made for Rwandese school-going kids must be cheaper and competitive enough so that the government may find it affordable. There is a greater possibility that the government will find it easier to purchase cheaper pieces of laptops in bulk than more expensive ones. Lastly, the ICT industry in Rwanda is a relatively young one. It is growing and shows prospects of becoming a giant in the whole of Africa. As things stand, and with the current situation where Rwanda is offering a lot of incentives for foreign investors, ARTS should move in quick and take up all the possible opportunities that the market offers since the ICT industry has great opportunities ranging from laptops to other devices used in the ICT. 5. Bibliography Beaumont, P., 2010. Rwanda’s Laptop Revolution. The Guardian. Available at https://www.theguardian.com/technology/2010/mar/28/rwanda-laptop-revolution [Accessed on 25th April, 2017]. Gahigi, M. K., 2014. Firm Gets Licence to Make Laptops in Kigali. The East African. Available at http://www.theeastafrican.co.ke/Rwanda/Business/Firm-gets-licence-to-make-laptops-in-Kigali-/1433224-2539226-ppwrc3z/index.html [Accessed on 26th April, 2017]. Mwanza, K., 2016. South American Firm to Develop First “Made in Rwanda” Laptop. Available at http://afkinsider.com/129954/129954/ [Accessed on 26th April, 2017] One Laptop, 2011. OPLC Across the World: Rwanda. Available at http://one.laptop.org/map/rwanda [Accessed on 26th April, 2017. Rwanda Development Board. 2016. Rwanda Special Economic Zones. SEZAR. The New Times. 2016. Is Rwanda Giving too much Tax in Incentives? Available at http://www.newtimes.co.rw/section/article/2016-06-08/200591/ [Accessed on 24th April, 2017]. The New Times, 2014. Positivo Chief: Why are We Opening a Plant Rwanda. Available at http://www.newtimes.co.rw/section/article/2014-11-26/183436/ [Accessed on 26th April, 2017] Ministry of Trade and Industry, 2016. Positivo, made in Rwanda Computer to Increase Country’s Export. Available at http://www.minicom.gov.rw/index.php?id=24&tx_ttnews%5Btt_news%5D=1010&cHash=edd69331bdbe03c21c0517365967bb46 [Accessed 26th April, 2017]. Trading Economics, 2017. Rwanda Foreign Direct Investment. Available at http://www.tradingeconomics.com/rwanda/foreign-direct-investment [Accessed on 26th April, 2017]. 6. Appendix PESTEL for Rwanda Political Despite civil war in 1994, Rwanda has picked itself up and is fairing rather well 23 years on Proper policy formulation in frameworks such as the Vision 2020 Economical Relatively lower purchasing power among peer countries. Average economic growth of 8.8% Economic Development and Poverty Reduction Strategy Social There is generally a better reach to social services Millennium Development Goals actualized in 2015 Technological Economy slowly shifting from agriculture-based to service and technology-based. Among biggest users of technology in Sub-Saharan Africa Environmental Environment conservation is key subject in various learning programmes Legal Legal frameworks are being formulated to enhance information and data privacy. Porter’s Five Forces Threat of New Entrants The market is experiencing a surge in foreign businesses that have an interest in getting a share of the market. Bargaining Power of Suppliers Google Intel and Microsoft are just but a few examples of big players who are willing to play the part of suppliers to competitors ASI-D, who are the faces behind Positivo H. Bargaining Power of Entrants While it is great to recognize the market, shares held by already-established players, it is equally prudent to note that new entrants are benefitting from bigger incentives from Rwandese government, making it even more expensive from the current players. Industry Rivalry Players like ASI-D are already in the market and have demonstrated the capacity to manufacture over 700,000 laptops annually. Threat of Substitutes The current project run by the government to establish an ICT part means there is a great chance that more companies that offer substitutes will show up. Cost Comparisons per laptop product Rwanda Western Market Positivo BGH Laptop $265 (Rfs 200,000) - $397 (Rfs 300,000) $265 GT80S Titan SLI 18.4in Core i7 Notebook $3792.37 (RFs 3000012.82) $3792.37 (RFs 3000012.82) Positivo BGH Laptop vs. ARTS Laptop According to Specifications Specifications Positivo BGH ARTS Operating System Windows 10 Windows 10 Hard Disc Capacity (HDD) 320 GB 1 TB RAM (Random Access Memory) 2GB 32GB DDR4 memory Graphics Cards (Not specified) NVIDIA GeForce GTX980M Processors Intel processor (2.16GHZ) Core i7 Others TB Cloud Storage Bitdefender Internet Security 6-month warranty 1x Mini DisplayPort, 5x USB 3.0, 1x HDMI, Dynaudio 7.1 Audio, Bluetooth 4.2, 1x USB Super Port Type-C Read More