Case Analysis - Paint Industry

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CAGE ANALYSIS

PAINT INDUSTRY



Potential for paint manufacturing business in Kenya:

Currently, there are four main players in the paint industry in Kenya namely, Crown Paints, Basco Paints, Sadolin and Solai Paints. The paint market mainly consists of two categories- Premium paints and Economy paints.

The number of housing complexes, commercial buildings like offices and shopping malls in Kenya have led to increased demand for decorative paint and coatings in the country. Due to rapid urbanization (50% of Kenya’s population expected to live in urban areas by 2030), the domestic construction industry has started competing in the global space and is creating huge demand for improved quality of decorative paints.

According to the Frost & Suvillian report on the decorative paints market in Kenya and Tnzania, the market earned total revenues of over $123 million in 2011 and is estimated to reach $190 million by 2018.

In order to achieve one of the Government’s objective of making Kenya a middle-income country by 2030, Kenya’s Government has passed the National Construction Authority bill which is expected to initiate new construction projects and make the quality of existing infrastructure better. This is likely to result in higher adoption of better quality paints.

Development process in neighbouring economies will further boost exports and force manufacturers to increase production capacity. Hence, paint manufacturing business appears to be very lucrative in Kenya and paint companies around the world should leverage this potential.

In order to do a CAGE Analysis, I have chosen two African countries namely- Kenya & Nigeria.

CAGE Analysis

CULTURAL DISTANCE (using Hofstede model):

KENYA

NIGERIA

Diversity

13 ethnic groups and 27 sub-groups.

3 Major Ethnic Tribes: Yoruba, Hausa-Fulani & Igbo

Language, Religion, Ethnicity

The Most Spoken Languages are English and Swahili.

Over 250 languages. English is the official language

Gender

1.02 Males/Female

1.031 Males/Females

Power Distance Index

The index is 64, there is considerable gap between the rich and poor.

The index is 77, the gap is much higher than Kenya. Rich is getting richer and poor is getting poorer (similar to India).

Individualism/ Collectivism

Collectivist Society

Collectivist Society

Masculinity (MAS)

Interpersonal relationships are given high importance. They follow the Ubuntu philosophy.

Interpersonal relationships are given high importance.

They follow the Ubuntu philosophy. Concept of extended family is also followed. Male chauvinist society.

Uncertainty Avoidance Index

The index is 52 which is moderate.

The index is 54 which is moderate.

Long Term v/s Short Term Orientation

Long Term Orientation

Long Term Orientation

Paint companies while setting up operations in Kenya should consider the cultural diversity of the country. Their main focus should be on marketing communication as language has to be given high importance. Packaging & designing of the paint cans should be in accordance with the colour preferences of various ethnic groups. Since interpersonal relationships are given huge importance, the paint companies should focus on building trust and sustaining long-term relationships with customers instead of merely selling the product to make profits. The companies should also produce long lasting paints due to population’s long-term orientation.

ADMINISTRATIVE:

KENYA

NIGERIA

Trade Relationships

East African Community(EAC)

COMESA.

South African Development Community: Therefore there is a lot of scope.

Member of OPEC,

ECOWAS (Economic Community Of West African States) and G20.

Government and Political Stability

Multi-party Democracy. New Jubilee Administration is approaching private sector as main partner for development of Kenya. The political environment is quite stable.

Nigeria's political parties arepan-nationaland irreligious in character.

Ethnic clashes exist. Politically instable.

NGOs

Considerable role in building Kenya’s economy. It’s run by expatriates. Estimate spent of $4billion.

In the paint industry, several NGOs that fight against the excess level of lead.

IPRs

Rank 75/97 on IPR Index published International IPR Index 2014.

Rank 94/97 on IPR Index published International IPR Index 2014.

GEOGRAPHIC:

KENYA

NIGERIA

Size

580,367 Sq. Km

923,768kmsq.

14th largest country in Africa

Climate

Tropical along the coast – rainfall and cool throughout. Arid further inside.

Tropical Climate.

Hot and wet in Southeast

Dry in Southwest and inland

Transportation

Extensive paved & unpaved roads. Railways link major ports & cities.

Extensive paved & unpaved roads. Railways link major ports & cities.

Landlocked

No.

No

Ports

Major port – Kilindini Port, Kisumu and Mombasa.

TheLagos Port Complexand Tin Can Island Port in Lagos.

Airport

16 Airports.

There are 26 airports of which 5 are international

ECONOMIC:

KENYA

NIGERIA

GDP(2013)

$44.10 billion

US $502 billion

GDP Growth(2013)

5.2%

6.2%

HDI

Rank 147

Rank 152

Ease of Doing Business

Rank 136

Rank 170

Logistics performance index

(low 1- 5 high)

2.81/5

2.39/5

Growth competitiveness index (low 1- 5 high)

3.93/5

3.82/5

Debt to GDP ratio

51.7%

11%

Transparency Index

Rank 145/175

136/175

Labour Force

Agriculture 75%, industry and Services 25%

Agriculture: 70%, industry and services 30%

Exports

Tea, horticultural products, coffee, petroleum products, fish, cement

Oil and natural gas

Imports

Machines & tools, transportation tools, petroleum products, motor vehicles, iron and steel, resins and plastics

Refined petroleum oils, car, telephones.

Conclusion:

After evaluating various parameters of CAGE, I conclude that for a paint company, starting operations in Kenya makes more sense. If we take a look at both the economies, Nigeria definitely has a good GDP growth rate and better transparency index. However, Kenya too is not far behind.

Following are the reasons for choosing Kenya:

  1. Largest country in East Africa:

Kenya is known to be the largest and the most developed economy in the East African region. It has the second largest population within the East African Community (EAC) at about 42 million and is growing at a rate of 2% per annum. The country possesses a very high growth prospect as it is supported by an emerging, urban middle class with an increasing purchasing power and demand for high value goods and services. This country alone contributes to more than 40% of East Africa’s total GDP.

  1. Strategic Location:

As the largest country in East Africa, Kenya’s strategic location and its highly conducive environment for business makes it an attractive place for investors and several international companies have made it their regional hub. This provides investors an access to the larger EAC and regional markets with over 390 million consumers. Kenya’s capital, Nairobi is too a huge transport Hub in East Africa which connects Jomo Kenyatta International Airport to numerous destinations around the world.

  1. Access to a wide market:

Kenya is a member of several regional economic blocs and along with its strategic geographic location, the economy serves as the gateway to the EAC, COMESA, and many other trade arrangements.

Potential gains from COMESA:

  • Member Countries: 20
  • Population: 445 Million
  • Total GDP: USD 360 Billion

Trade Arrangements:

Kenya also has membership with many trade arrangements and beneficiary to schemes that boost the trade. These schemes comprises of the Africa Growth and Opportunity Act (AGOA), WTO and EAC-EU Trade Agreement. Soon there will also be Tripartite Free Trade Area (FTA) cooperation between EAC, SADC and COMESA which will give access to a huge market with 600 million consumers.

  1. Stable political environment and investment policies:
  • New Government: The new Jubilee Administration considers the private sector as the main contributor to economic and social advancement. The government is supporting privatization by divesting its majority shareholdings in State commercial companies via the Nairobi Securities Exchange.
  • Regulatory reforms: Kenya is working towards reducing the cost of doing business. Hence, it is making extensive business regulatory reforms in order to reduce the number of licensing requirements to a large extent and to make the licensing system more transparent.
  • Completely liberalized economy: Kenya is completely a liberalized economy. Over the years, it has removed all barriers that previously caused hindrance to trade and private investment which comprises of exchange controls, import and export licensing, FDIs, restrictions on remittances, etc.

Therefore, Kenya with less institutional voids, strategic location, a better rank in ease of doing business, a better logistics performance index, wider market access and a deep economic system looks like a more attractive destination for investment than Nigeria.

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