The Ethiopia: An Emerging Market Opportunity? case centers on the potential and challenges of entering an emerging market. It provides a brief overview of the Ethiopian market, market reforms and policies, and the business environment faced by foreign companies. Three multinational businesses, CareCo, ShoeCo, and MedCo, must decide whether and how to enter the Ethiopian market. Students are asked to make a recommendation for each company based on the attractiveness of the market, the factors that matter most for success, and an assessment of what applies to the companies.

1. DOING BUSINESS IN ETHIOPIA
Killer K’s

2. CareCo – Kristian & Christian

3. CareCo – CULTURE: ETHIOPIA VS. UK
70
20
65
55
35
89
66
35
0
10
20
30
40
50
60
70
80
90
100
Power Distance Individualism Masculinity Uncertainty Avoidance
Ethiopia UK

4. CareCo – RISK ASSESSMENT
Risks Likelihood Impact Scoring: (likelihood + 3xImpact)/2
Resistance by consumers for new products 3 5 9
Competition by counterfeit products resulting in decreasing margins, profits, and
competitive advantages
3 5 9
Delays in production and delivery of goods 5 4 8.5
Unfair competition from local and state-backed companies 4 4 8
Delays in receiving products 4 4 8
Decrease in sales 4 4 8
Problems with Ethiopian currency market 5 3 7
Possibility of governmental instability 1 4 6.5
Challenges to the business model 4 3 6.5
Difficulty to navigate and manage customer relationships 4 3 6.5
Cultural clashes between employees 3 3 6
Hindering of company operations 2 3 5.5
Delays in paperwork due to government bureaucracy 4 2 5
Lack of experienced native human resource personnel 3 2 4.5
Opportunity loss (government tenders) 1 1 2

5. CareCo - FINANCIAL ANALYSIS
Income statement (in $ millions)
Year 1 2 3 4 5 6 7
Sales 6.25 11.93 16.84 21.75 26.70 31.69 36.72
COGS 2.50 4.57 6.18 7.61 8.90 10.03 11.02
Gross profit 3.75 7.36 10.67 14.14 17.80 21.65 25.70
Fixed costs 12.00 12.50 13.00 13.50 14.00 14.50 15.00
EBIT -8.25 -5.14 -2.33 0.64 3.80 7.15 10.70
CareCo Year
Addressable market $125M 1 2 3 4 5 6 7
Market growth 15-20% over 10 years (0.5%year) - 15.00 15.50 16.00 16.50 17.00 17.50
Projected market
share
year 1: 5% year 7: 25% 5.00 8.33 11.67 15.00 18.33 21.67 25.00
Projected gross
margins
year 1: 60% year 7: 70% 60.00 61.67 63.33 65.00 66.67 68.33 70.00
Projected fixed costs Year 1: $12 year 7: $15 12.00 12.50 13.00 13.50 14.00 14.50 15.00
CAPEX $55M -

6. CareCo – FINANCIAL RATIOS/ANALYSIS
• Total EBIT(7 years): $6.57M
• ROI (7 years): -88%
• IRR (7 years): -18%
-10
-5
0
5
10
15
Total EBIT
CareCo

7. CareCo – SWOT
Strengths
• High brand awareness
• Global brand recognition
Opportunities
• Market growth
• Increasing purchasing
power
• Low labor cost
• Possible higher margins
• Tax incentives
Threats
• Competition has
established manufacturing
• IP infringement
• Underdeveloped
infrastructure
Weaknesses
• Struggling in key markets
• Low margins and high
custom duties when
working with local dist.
S W
TO

8. CareCo – AVAILABLE OPTIONS
Pros ConsPros ConsPros Cons
Local Agent Licensing Subsidiary

9. CareCo – RECOMMENDATION
Pros Cons
ACTION PLAN
• Find a partner with excellent access
to the market and distribution
channels.
• Engage in hedging techniques in
order to avoid currency risks.
• Attempt to secure credit lines with
local as well as international banks.
Joint Venture

10. ShoeCo – Kienan & Kamola

11. ShoeCo – CULTURE: ETHIOPIA VS.
CHINA
70
20
65
55
80
20
66
30
0
10
20
30
40
50
60
70
80
90
Power Distance Individualism Masculinity Uncertainty Avoidance
Ethiopia China

12. ShoeCo – RISK ASSESSMENT
Risks Likelihood Impact Scoring: (likelihood + 3xImpact)/2
Competition by counterfeit products resulting in decreasing margins, profits, and
competitive advantages
4 5 9.5
Delays in production and delivery of goods 5 4 8.5
Resistance by consumers to new products 2 5 8.5
Unfair competition among state owned and private enterprises 4 4 8
Delays in receiving products 4 4 8
Decrease in sales 4 4 8
Hindering of cash flow 5 3 7
Changes in government 1 4 6.5
Challenges to the business model 4 3 6.5
Difficulty to naviagte and manage customer relationships 4 3 6.5
Cultural clashes between employees 3 3 6
Hindering of company operations 2 3 5.5
Delays in paperwork due to government bureaucracy 4 2 5
Lack of experienced native human resource personel 3 2 4.5
Oppurtunity loss (government tenders) 1 1 2

13. ShoeCo – FINANCIAL ANALYSIS
Income statement (in $ millions)
Year 1 2 3 4 5 6 7
Sales 2.70 4.05 5.20 6.36 7.53 8.71 9.90
COGS 1.08 1.59 1.99 2.39 2.76 3.12 3.47
Gross profit 1.62 2.46 3.21 3.98 4.77 5.59 6.44
Fixed costs 10.00 10.33 10.67 11.00 11.33 11.67 12.00
EBIT -8.38 -7.87 -7.46 -7.02 -6.56 -6.08 -5.57
ShoeCo Year
Addressable market $90M 1 2 3 4 5 6 7
Market growth 8-12% over 10 years (0.4% year) - 8.00 8.40 8.80 9.20 9.60 10.00
Projected market
share
year1: 3% year7:10% 3.00 4.17 5.33 6.50 7.67 8.83 10.00
Projected gross
margins
year 1: 60% year 7: 65% 60.00 60.83 61.67 62.50 63.33 64.17 65.00
Projected fixed costs year 1: $10 year7: $12 10.00 10.33 10.67 11.00 11.33 11.67 12.00
CAPEX $35M -

14. ShoeCo – FINANCIAL RATIOS/ANALYSIS
• Total EBIT (7 years): $-48.93M
• ROI (7 years): -240%
• IRR (7 years): Unneeded
-9.00
-8.00
-7.00
-6.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
Total EBIT
ShoeCo

15. ShoeCo – SWOT
Strengths
• Proven track record in local
market
• Similar sociological mentality
as Ethiopia
Opportunities
• Market growth
• Increasing purchasing
power of Ethiopians
• Low labor cost
• Possible higher margins
• Tax incentives
• Exports
Threats
• Government labor
regulations
• Unfair competition
• Taxation policies
• Government instability
Weaknesses
• Projected financials show
negative revenues
S W
TO

16. ShoeCo – AVAILABLE OPTIONS
Pros ConsPros ConsPros Cons
Licensing Joint Venture Subsidiary

17. ShoeCo – RECOMMENDATION
Pros Cons
ACTION PLAN
• Continue with current local agent
strategy
• Research export market more in-
depth to explore other possibilities
• Based on conducted research and
revised financial projections,
reconsider joint venture
Local agent

18. MedCo – Hiro & Hanna

19. MedCo – CULTURE: ETHIOPIA VS. UAE
70
20
65
55
95
25
60
80
0
10
20
30
40
50
60
70
80
90
100
Power Distance Individualism Masculinity Uncertainty Avoidance
Ethiopia UAE

20. MedCo – RISK ASSESSMENT
Risks Likelihood Impact Scoring: (likelihood + 3xImpact)/2
Loss of know-how resulting in decreasing margins, profits, and competitive
advantages
4 5 9.5
Delays in production and delivery of goods 5 4 8.5
Delays in receiving products 4 4 8
Decrease in sales 4 4 8
Opportunity loss (government tenders) 3 4 7.5
Unfair competition among state owned and private 2 4 7
Hindering of cash flow 5 3 7
Changes in government 1 4 6.5
Difficulty to naviagte and manage customer relationships 4 3 6.5
Challenges to the business model 3 3 6
Cultural clashes between employees 3 3 6
Resistance by consumers for new products 2 3 5.5
Hindering of company operations 2 3 5.5
Delays in paperwork due to government bureaucracy 4 2 5
Lack of experienced native human resource personnel 1 2 3.5

21. MedCo – FINANCIAL ANALYSIS
Income statement (in $ millions)
Year 1 2 3 4 5 6 7
Sales 10.00 19.17 26.83 34.50 42.17 49.83 57.50
COGS 3.00 5.59 7.60 9.49 11.24 12.87 14.38
Gross profit 7.00 13.58 19.23 25.01 30.92 36.96 43.13
Fixed costs 10.00 10.50 11.00 11.50 12.00 12.50 13.00
EBIT -3.00 3.08 8.23 13.51 18.92 24.46 30.13
MedCo Year
Addressable market $200M 1 2 3 4 5 6 7
Market growth 15% - 15.00 15.00 15.00 15.00 15.00 15.00
Projected market
share
Year 1: 5%, year 7: 25% 5.00 8.33 11.67 15.00 18.33 21.67 25.00
Projected gross
margins
year 1: 70%, year 7: 75% 70.00 70.83 71.67 72.50 73.33 74.17 75.00
Projected fixed costs year 1: $10M, year7: $13M 10.00 10.50 11.00 11.50 12.00 12.50 13.00
CAPEX $85M -

22. MedCo – FINANCIAL RATIOS/ANALYSIS
• Total EBIT (7 years): $95.33M
• ROI (7 years): 12%
• IRR (7 years): 2%
-5
0
5
10
15
20
25
30
35
Total EBIT
MedCo

23. MedCo – SWOT
Strengths
• Lean and agile
manufacturing
• Know-how
• Great efficiency
Opportunities
• Operational subsidiary
within a year
• High government
prioritization
• Government tenders
• Market growth
Threats
• Counterfeiting
• Delays in production
• Poor infrastructure
• IP theft
• High competition
• Fragmentation of
distribution channels
Weaknesses
• Cultural difference
• Resistance to
organizational change
S W
TO

24. MedCo – AVAILABLE OPTIONS
Pros Cons
Unfair
treatment
Fragmentation
of dist. channel
Protection of
Know-how
High control
level
Pros ConsPros Cons
Local Agent Licensing Subsidiary

25. MedCo – RECOMMENDATION
Pros Cons
ACTION PLAN
• Build strong relationship with the
government.
• Ensure government participation as
silent partner.
• The alternative is creating a JV with a
local silent partner.
JV with a silent
partner

26. EXECUTIVE SUMMARY
CareCo:
Recommended strategy: Enter market as a joint-venture.
ShoeCo:
Recommended strategy: Keep local distributor, further research potential export
revenues.
MedCo:
Recommended strategy: Enter market as a joint-venture with the government
(silent partner).