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In Algeria, to set-up a joint-venture company, the Algerian partner must hold atleast 51% of the share capital. This implies that the Algerian partner will have an upperhand in the company in terms of decision-making and control which is a disadvantage to the Malaysian company (KPMG, 2009). To invest in Algeria, the project must also be submitted for examination by the National Investment Board (CNI). The funding needed to carry out the business must also be sourced locally (KPMG, 2009). However, the country's rating of getting a loan declined by three ranks from 2010 to 2011 (World Bank, 2011). In addition, state owned banks in Algeria, which account for most of the enterprise sector, are unfriendly, bureaucratic and are lacking in terms of modern information and payment systems. Getting a loan approved also takes a long time, around 4.5 months on average for a working capital loan (World Bank, 2002). Therefore it may be difficult and time consuming for the Malaysian company to obtain funding for the business through bank loans and will have to rely on its retained earnings mostly if the banks consider it not to be credit-worthy.
Futhermore, the administrative difficulties which may be faced by the Malaysian company include access to information such as market data, statistics, laws and procedures because of the country's poor communication network. Companies often lack access to key databases and information centers to help them in their market research (World Bank, 2002). Therefore the Malaysian company may face difficulties in analysing the behaviour and spending patterns of its target market and competitors' activities in the clothing industry which will limit its ability to take effective decisions. Algeria's corporate income tax rate for 2010 was 25% (Algeria Tax rates, 2011). However, if the Malaysian company invests more than 500 million dinars, it can apply for tax incentives at the National Investment Board (KPMG, 2009). If the company's request for tax incentives is approved, its cost may be reduced and it will be able to sell its clothes at a cheaper price, making its product more competitive in the Algerian market.
Political instability and security problems in Algeria may plague the Malaysian company. Terrorist violence in Algeria has lead to more than 150,000 deaths during the 1990s. Following the implementation of the Charter on Peace and National Reconciliation in March 2006, many moderate Islamists have surrendered but the more extremist groups like the Salafist Group for Preaching and Combat became stronger by merging with Al-Qaida in 2006 (U.S Department of state, 2011). Therefore, in the event of major terrorist attacks, the Malaysian company may have to close down if sales drop drastically due to reduced pedestrian and vehicular traffic. The country is also subject to rampant corruption and its ability to control corruption has dropped from 2006 to 2010 as indicated by the Control of Corruption Indicator calculated by the World Bank (World Bank, 2011). This shows that the Malaysian company must be prepared to deal with corruption and correct any unfairness which may result from it. The country also faces a high unemployement rate with one quarter of its population unemployed, the unemployement rate stood at 10% in February 2011 (Euromonitor, 2011). Unemployment may be an advantage for the company as the wages for labour will be low and the demands of the labourfaorce will not be too high in terms of other employment benefits. Recently, riots also exploded in protest of steep rises in the prices of several basic commodities (Euromonitor, 2011). The Malaysian company must be prepared to face such situations during which sales may decline. Steep rises in the prices of basic commodities also imply that consumers will have less disposable income after buying the basic food items at an inflationary price.This may adversely affect the profits of the Malaysian company.
The Algerian retail sector is rigorously underdeveloped and is dominated by small family owned retail outlets and wet markets or open-air markets in urban and rural areas. Very few international retail chains have invested in the country because of bureaucratic obstacles and the participation of the military elite in the sector. The clothing sector in Algeria, which is the most developed consumer-goods industry, is import-oriented and clothes imported are very competitive in terms of prices. The Malaysian company may therefore face difficulties in competing with the cheap imports particularly from India and will have to focus more on differentiating its brand based on other attributes like quality and good customer service.
Despite Algeria's 30 million plus population, an increase in demand for clothing in the recent years has been constrained by a combination of unemployement and low incomes. Over one-third of Algerians were living below the poverty line according to figures given by the labour and social security minister in 2001. Demand for clothing rose by 5.8% in local-currency terms between 1998and 2002. Nevertheless, sales declined by 24.6% in US dollar terms over the same period, owing to the depreciation of the Algerian dinar (Consumer Goods Forecast: Middle East and Africa, 2004). Consumer expenditure on clothing and footwear rose by 2% in 2009 (Euromonitor, 2010). Therefore, the clothing of the Malaysian company must be priced at an affordable rate for the income group which the company will target. The inflation rate in Algeria increased from 1.6 to 5.5 % from 2005 to 2010 (Euromonitor, 2011). If the inflation rate continues to increase, the sales of the Malaysian company may drop and its employees may demand an increase in pay to compensate for the high inflation. However consumer expenditure per capita rose by 6.6% in real terms in 2010 (Euromonitor, 2011). Therefore, the spending power of Algerians has increased in 2010 in real terms probably because of a rise in pay. This may positively affect the Malaysian company in terms of more sales revenue.
Algeria's population reached 35.4 million in 2010. The country's median age is still relatively young but rising rapidly. It was 26.2 years in 2010, up from 23.5 years in 2004 (Euromonitor, 2011). Therefore it is advisable for the Malaysian company to focus on the relatively young Algerian consumers and sell clothes targeted at them as the young population is more prominent in Algeria. Online retail sales are almost non-existent in Algeria as internet penetration stood at 1.5% of the population, as of December 2002, according to the International Telecommunication Union (Consumer Goods Forecast: Middle East and Africa, 2004). Therefore the Malaysian company will not be able to sell its clothes online due to the low level of internet penetration in Algeria. In August 2010, Algeria's first modern shopping centre was opened in Algiers. Bab Ezzouar is one of the biggest shopping centres in North Africa and consists of both grocery and non-grocery retailers. Bab Ezzouar will be the ideal location for the Malaysian company to set up its clothing shop as consumers around the country travel to visit and do their shopping at the modern center. By setting up there, the Malaysian company will be more visible and its clothes will gain popularity faster. In terms of religion, 99% of Algerians are Muslims and only 1% are Christian and Jewish (U.S department of State, 2011). The Malaysian company should therefore sell clothes mostly targeted at the Muslim community as they represent the majority of the population.
The coverage of the electricity network in Algeria is among the highest in the surrounding countries, but quality is a major problem. In 2001, firms suffered power outages on nearly 14 days on average and only 29% of firms in Algeria own a generator (World Bank, 2002). It is therefore advisable for the Malaysian company to install a power generator in case of major power cuts to keep its store fully functional at all times. Access to water is another major problem is Algeria. Most urban centers experience drastic shortages with access to potable water rationed to a few hous per day fequently. In 2001, firms suffered a shortage of water supply for an average of 42 days. The Malaysian company should therefore be prepared to deal with water shortages and set up in an area where water cuts are less frequent.