INDUSTRY COMPETITOR ANALYSIS
Instructions :-
AIM
The subject of the case study is a country risk assessment. Candidates should imagine that they are considering the viability of making a direct investment in projects located in the Rwandan Special Economic Zone. Groups should identify a company currently invested in this zone and analyse the viability of making a direct investment in this company’s project.
The company we chose is ‘Strawtec building solution’ (http://www.strawtec.com/)
Report Structure
The report must be well presented with synopsis, relevant literature and data, results and conclusion. There should be a comprehensive reference list and all detailed data should be in appendices that are referred to in the body of the report.
The report must include:
1. An Executive Summary
2. A statement of the scope and opportunity of the investment. Reason out why the specific host country was chosen as compared to so many other countries for the specific industry/product? This needs to be evidence based (E.g.: Industry MPI).
3. PESTLIED analysis and summary findings. Provide the country risks from the perspective of the specific industry. Please note this is for the specific industry in the country and based on evidence (use relevant references).
4. Industry/Competitor analysis
5. Suggested mode of entry and an assessment of its appropriateness for entering the chosen market
6. Risk management considerations
7. A conclusion, including the group’s assessment of whether the investment is reasonable given the nature of the risks.
8. References
9. Any appendices
You only need to do part 4 “Industry/Competitor analysis” with references and any appendices.
Report Content
Treat the report as if it is a professional report you have been asked to prepare by the board of the company making the FDI decision. You have been asked to prepare a report evaluating the decision that the company made to enter a foreign country. This should look at all the relevant factors both internal and external, and the mode of entry and make a recommendation as to whether the company’s decision to enter that foreign market was a good one or if it might have been better off either not entering that market or by doing something differently (this could be in terms of their structure, strategy, preparedness of nature of entry).
You want your boss/client to read the report (and they are very busy) so the point of the executive summary si to highlight noteworthy points that are going to create interest in reading further (otherwise the report might just end up in the bin unread).
Solution
INDUSTRY COMPETITOR ANALYSIS
Acquiring assets and business interests in another country is a common trend these days. Multinationals are looking for a way to increase their reach and generate more revenues by investing in other nations for various amounts of reasons (Porter, 2008). However, before a company can decide whether to invest in another country, they must conduct a thorough analysis of the business environment. Competitor analysis is one of the most critical activities that are carried out before investing in foreign countries. It is vital to understand the nature of the competition and the industry to determine whether the investment will be viable or not (Porter, 2008). This paper will look at the industry competition analysis of Strawtec in Rwanda to establish the viability of investing in the firm.
Industry Analysis
Rwanda is a country in Eastern Africa, and it enjoys the record of the cleanest city in the region with its capital, Kigali. Strawtec is based in Rwanda, and they are engaged in the production of low-cost wall construction materials that are made out of compressed agricultural straw (Tumwebaze, 2015). It is a method that offers sustainable and eco-friendly building products in a manner that is affordable. The products are meant to satisfy the domestic market, other African countries as well as the international arena.
Rwanda is ranked highly among the growing economies in Africa. The growth is rapid and is accelerated by a growing population and increased competition for resources in this small country (Business Sweden, 2017). The increasing growth is exerting pressure on urbanisation with more people streaming into towns and cities to seek employment opportunities. The growing population has led to a rise in demand for housing. Affordable housing is gaining popularity as people look to reduce costs of construction while maintaining quality. Kigali is densely populated, and the costs of construction are very high prompting the need for innovative methods. Currently, Rwanda needs an average of 35,000 new housing units per year to meet their demand by 2020 (Tumwebaze, 2015).
In 2009, the Kigali master plan was launched to operate as a roadmap for developing and enlarging Kigali over a period of 50 years. The city council came up with the plan after the government and private sector became interested in solutions for effective land management. According to the master plan, land management will be done by building a large number of affordable apartments with all the basic household needs required for a decent living (Rdb.rw, 2017). The government has to partner with like-minded investors from the private sector to make this idea a reality. It is an ambitious project aimed at increasing the residential space to cater for the rising population, in safety and decency at affordable rates.
Strawtec opened their factory in Rwanda in 2015, and they are involved in manufacturing affordable construction materials using compressed straw (Strawtec.com, 2017). The company fits the profile to partner with the government on such a vital project, and they have the added advantage of being eco-friendly. By using rice and wheat straws to replace the standard walls made of cement, the cost of construction has come down dramatically. The process of treating the straw is certified, and it results in high quality and durable strawboard panels (Strawtec.com, 2017). The technology is tested and proven with a long history spanning 80 years in Europe and America. The combination of affordability and durability is a major advantage that has enabled the company to make a huge impact on the Rwandese construction industry in a relatively brief period.
According to Rwanda’s Vision 2050, the government aims to improve the quality of life of the residents and provide them with modern infrastructure. SMART cities for optimal utilisation of space as well as increased competitiveness in the construction sector will transform the urban landscape of the country (Rdb.rw, 2017). The vision is also keen on fostering international partnerships in the public and private sector. The construction industry in Rwanda accounts for 7.1% of the GDP. Construction is the fastest growing sector of this economy. The majority of growth in the industry came from construction where it reported an average growth rate of 12.8% per annum between 2010 and 2015 (Business Sweden, 2017). The Rwandese construction industry is expected to grow at an average of 9% until 2021 representing one of the highest growth rates in sub-Saharan Africa. The government supports foreign direct investment since they understand growth and development will be fueled by superior infrastructure. All these features imply that Strawtec is in the right place at the right time as the country is about to embark on an extended period of intensive and innovative construction.
Porters Five Forces
Analysing the industry further using Porter’s five forces will paint a clear picture of the viability of investing in Strawtec. The five forces determine whether industry or firm, is viable as an investment option or not. The understanding the competitive landscape of industry will enable management to come up with strategies that are conversant to a particular environment (Porter, 2008).
Industry rivalry
This force considers the degree of competition within the existing companies. Firms must take into account this force since intense competition often leads to reduced profits. There are no businesses in Rwanda that provide the materials at the level, quality and consistency of Strawtec. JSI is an American company that builds affordable houses in Rwanda, but they don’t use straw as the building block of their materials (Hope Magazine, 2017). Therefore, there is no significant competitor to oust Strawtec from their position as a first mover.
Threat of substitutes
Availability of substitute products reduces the power of a company to raise their prices and earn high profits (Porter, 2008). Strawtec is the first company of its kind in Rwanda. The materials used in construction are the traditional stone, cement and steel for most major housing projects. These materials are expensive, and the government is trying to look for other means to drive down the cost of construction. The imports of cement and other related products went down from Rwf67 billion to 35.4 billion in 2016. The huge drop in imports came as the government is concentrating on efforts to enhance local production (Ntirenganya, 2017).
Bargaining power of buyers
The main buyers of the materials made by Strawtec are government institutions as well as private companies involved in the construction of low-cost housing. The government is the biggest customer, and they have an agreement with the company beginning with the building of the factory within the Special Economic Zone. The government is keen to partner with foreign investors who share a similar development agenda, and hence the future of Strawtec appears to be in good hands. The reduction in the importation of cement products means the country is ready to embrace other methods of construction and Strawtec can complete structures quickly without cement.
Bargaining power of suppliers
The main raw material required by Strawtec is wheat and rice straws. The Rwandese farmers who cultivate these two crops can gain income from value addition of the raw materials (Tumwebaze, 2015). There are any suppliers/farmers, and hence it is impossible to dictate premium prices to the company. The mutual benefit allows Strawtec to have an abundance of straw at relatively low prices and farmers get money for a by-product of their activities.
Barriers to entry
The government of Rwanda will benefit from the cheap construction materials and enjoy annual savings of about $12 million in importing building materials like cement (Ntirenganya, 2017). The cost of setting up the Strawtec factory was rough $10 million, which is quite high. The entry of the company into the Rwandese construction industry was seen as a significant step in reducing costs and hence was highly publicised. The high cost and logistics of setting up such an operation mean that entry into the industry is difficult. Strawtec has trained farmers and agronomists and being a first mover, they have established themselves making it difficult for new companies to enter the scene. However, as the demand for construction materials continues to increase with the population, other foreign and domestic companies will come into the sector in the long term.
Conclusion
Foreign direct investment is a good way for companies to increase their portfolio and make more money. A country like Rwanda welcomes foreign investors due to the need for immediate and tried solutions to problems within the country.
Recommendation
After looking at the industry analysis, it is clear that the future for construction in Rwanda is bright. Increasing population and rapid urbanisation are driving up the demand for housing. The government views apartments as the best way of land management. Strawtec can create apartment blocks using the straw panels and a recycled steel exoskeleton. The reduction in imports of cement and other related products for locally produced materials shows the direction the government is taking about materials. Strawtec is ideally placed with the right materials and cost for the right market. As Rwanda undergoes a construction boom, Strawtec is well positioned on an upward trajectory due to their innovative products and methods. Investing in Strawtec seems to be a good decision in the short and long term.
References
Business Sweden (2017). OPPORTUNITIES IN THE CONSTRUCTION INDUSTRY IN RWANDA. Construction Industry in Rwanda. [online] Nairobi: Swedish Trade and Investment Council. Available at: http://www.business-sweden.se/contentassets/46366e8d9f584bf495f139ae7f2020d7/factpack—construction-industry-in-rwanda—2017.pdf [Accessed 15 May 2017].
Hope Magazine (2017). JSI Ready to meet Rwanda’s affordable housing needs. [online] Hope Magazine. Available at: http://www.hope-mag.com/index.php?com=news&option=read&ca=6&a=2271 [Accessed 15 May 2017].
Ntirenganya, E. (2017). Cement import falls as govt seeks to narrow construction materials imports bill. The New Iimes. [online] Available at: http://www.newtimes.co.rw/section/article/2017-03-26/209575/ [Accessed 15 May 2017].
Porter, M. (2008). On competition. 1st ed. Massachusetts: Harvard Business Press.
Rdb.rw (2017). REAL ESTATE. [online] Rdb.rw. Available at: http://www.rdb.rw/rdb/real-estate.html [Accessed 15 May 2017].
Strawtec.com (2017). LOW COST HOUSING RWANDA: Construction with Wall Systems by STRAWTEC. [online] Strawtec.com. Available at: http://www.strawtec.com/ [Accessed 15 May 2017].
Tumwebaze, P. (2015). Works on Rwf7.2b building materials factory start. The New Times. [online] Available at: http://www.newtimes.co.rw/section/article/2015-02-24/186277/ [Accessed 15 May 2017].