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Jordan Ricker
MGT 510
Professor Cattaneo
22 September 2016
Case Write Up - Ethiopia: An Emerging Market Opportunity?
Investment Opportunity
Ethiopia represents an attractive investment opportunity for a variety of industries.
The Ethiopian government has recently started to encourage foreign direct
investment by offering foreign companies income-tax exemptions for up to five
years (for new companies) and the possibility of additional tax dedications after
the first five years for certain sectors the government has deemed
underdeveloped. Companies can benefit from the fact that the government has
also allowed that capital and profits generated by foreign firms can be converted
into foreign currency, although it should be noted that accessibility of this
conversion is not always reliable, as cash shortfalls are relatively common in the
country.
Ethiopia also has a large and growing workforce, with over 10,000 graduates from
university each year entering the labor force. Coupled with the overall population
size of nearly 100 million people (the second largest in Africa after Nigeria), the
size of the market is vast and nearly untapped by foreign companies. Furthermore,
a growing GDP and the low cost of domestic labor makes Ethiopia ideal for
businesses looking to develop. These factors, combined with the ability for
expansion into the rest of East Africa in the future and an increasingly welcoming
and improving business climate in Ethiopia, makes the country an overall
appealing investment opportunity.
Key Success Factors
While Ethiopia represents an attractive investment opportunity, it also offers
numerous challenges for foreign firms. The key success factors for this market are
local partners, reliable backups/alternatives, and determination.

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One of the main challenges in investing in Ethiopia is domestic
protectionism, as the Ethiopian government has a history of protecting local
companies and encouraging import substitution, often at the detriment of foreign
companies. This must be considered in tandem with the industrial policy of
Ethiopia, as companies looking to invest in Ethiopia must have the ability to
successfully navigate government relations. Both of these challenges can be
mitigated through the use of local partners. Local partners would enable foreign
firms to not be as hard hit in governmental preference for local businesses and
they would also be able to share experience with their foreign partners in
negotiating the complexities of Ethiopian governmental regulation.
Another significant challenge for the Ethiopian market is the lack of reliable
infrastructure. There are a limited number of roads in operation in the country and
of those constructed, many are in need of repair. As such, a reliable and consistent
inventory of backups and alternative methods of production and transport (i.e.,
trucks, generators, etc.) should be prepared by any foreign companies planning to
invest in Ethiopia.
Lastly, determination is a crucial success factor in entering the Ethiopian
market as the ease of doing business and market access both present numerous
issues. Cultural differences and corruption are just two of many challenges that
companies must address to successfully operate in the country. Perseverance and
stamina are values that need to ingrained into any Western team that starts
operations in Ethiopia in order to confront the many unforeseen roadblocks that
will emerge from entering the country.
Individual Company Evaluation
CareCo
Evaluation Process
CareCos proposal strength lies in its potential economic revenue, not in the ability
to address other potential challenges. CareCos greatest weakness is its inability to
think beyond economics.
Item

Importance of Success
factor (1-5)

Strength of proposal (1-5)

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Political

High level of government

Small amounts of

Environment and

corruption and domestic

consideration, but does not

Industrial policy
Ease of doing

protectionism - 3
Corruption is very high - 4

seem to factor strongly - 2


Not adequately considered - 2

business
Market

Success depends on true size

Projections very sensitive to

opportunity

and growth of addressable

how market grows 2/3

Brand positioning

market - 5
Without local partners, there

Working with local companies,

locally

will be no success - 5

but not as many local partners


-3

CareCo
Payback Period
CareCos payback period would be 5.7 years if it held a 20% market growth rate,
achieving 25% of market share by 2022 and also attained 70% GM by 2022.
However, if CareCo only had a 15% market growth rate with 15% of the market
share by 2022 and its GM was 65% by 2022, then the payback period would be 8.6
years. In both cases, CareCo would start to make exponential profits starting in its
second year in the black.
Assumptions High End
-20% market growth rate
-Market share at 25% in
2022

Low End
-15% market growth rate
-Market share at 15% by 2022
-65% GM in 2022

-70% gross margin in 2022


Payback (years) 5.7
8.6
Recommendations
It is recommended that CareCo enter the market in Ethiopia due to the reasonable
payback period and potential for extremely high profit. However, it should be
cautioned that while the payoffs have the potential to be very high, a lack of
systematic consideration of different factors specific to Ethiopia could lead to longterm deleterious effects.
ShoeCo

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Evaluation Process
Item

Importance of Success

Strength of proposal (1-5)

Political

factor (1-5)
High level of government

Attention paid to political

Environment and

corruption and domestic

environment 3/4

Industrial policy
Ease of doing

protectionism - 3
Corruption is very high - 4

Not adequately considered - 1

business
Market opportunity Success depends on true size

Projections based on

and growth of addressable

competitors seem realistic

Brand positioning

market - 5
Without local partners, there

3/4
Focus on knowledge transfer

locally

will be no success - 5

and partnerships - 5

Payback Period
Assumptions High End
-10% market growth rate
-Market share at 10% in
2022

Low End
-5% market growth rate
-Market share at 5% by 2022
-60% GM in 2022

-70% gross margin in 2022


Payback (years) 3.5
4.0
Recommendations
Item

Importance of

Strength of proposal (1-

Political Environment

Success factor (1-5)


High level of

5)
Small amounts of

and Industrial policy

government

consideration, but does not

corruption and

seem to factor strongly - 2

domestic
protectionism - 3
Ease of doing business Corruption is very high Not adequately considered
Market opportunity

-4
Success depends on

at all - 1
Projections are more

true size and growth

optimistic than pessimistic

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of addressable market

Brand positioning

-5
Without local partners, Focus on building

locally

there will be no

partnerships - 5

success - 5
It is recommended that ShoeCo enter the market. Both on the high and low-end
assumptions, the payback period would be a maximum of four years, which is
favorable. Additionally, the focus on knowledge transfer and partnerships would be
greatly encouraged by the Ethiopian government and would help ShoeCo in the
long-run to establish a strong, government-backed presence in the market.
MedCo
Evaluation Process
MedCos proposal focuses on getting in on the ground, learning the market, and
building partnerships (p.6) but does not address several other crucial factors
about entering the Ethiopian market.
Payback Period
Assuming a stable growth rate of 15%, 10% of market share by 2022, and a gross
margin of 70%, MedCos payback period would be 7.8 years. At a smaller growth
rate of only 10%, market share at 10% by 2022, and with a gross margin of 60%
(Low End prediction) MedCos payback period would be 9.9 years. At a High End
prediction of a 20% growth rate, 15% of market share by 2022, and a 70% GM, the
payback period would be 5.7 years. Thus, the best estimate is that the breakeven
point for MedCo would be between 7 and 8 years, assuming no unforeseen
circumstances.
Assumptions

High End

Medium

Low End

-20% market growth

-15% market growth -10% market growth rate

rate

rate

-Market share at 10% by

-Market share at 15% -Market share at

2022

in 2022

-60% gross margin in 2022

10% in 2022

-70% gross margin in -70% gross margin


2022
Payback (in years)5.7

in 2022
7.8

9.9

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Recommendations
It is recommend that MedCo does not enter the Ethiopian market. Their payback
period would be at least 7 years and they do not seem adequately prepared to
deal with the difficulties of doing business and the amount of government and
industrial policy they would need to overcome.