Executive summary

Best Buy provides technological products, services and technological solutions. Best Buy needs to venture into other markets for sustainability. This report expounds on the African retail market as an emerging market and focuses on Rwanda as the entry point. The middle class in on the rise in Africa, which contributes mainly in the modernisation of the retailing market. Key drivers of growth in the African retail market include urbanisation, demographics and improved economic performance. Africa continues to experience increased growth in the adoption of digital technology including mobile payments, e-commerce and digital content. Rwanda is essentially the highest attractive retail market in Africa due to clear regulations and economic developments. Entering the Rwandan market through foreign direct investment is the appropriate entry mode given the available infrastructure. The worst challenge in the African market is counterfeit goods while the opportunity is the availability of a large potential market. Best Buy should consider investing in Rwanda and the African market at large.

BEST BUY

Introduction

Best Buy provides technology products and services as well as solutions. The company specialises in expert services to individual consumers, businesses and educators. Bet buy currently operates in the United States, Mexico and Canada with both physical and online presence. One of the core values of the company is to learn from change and challenge. The world is changing in terms of demographics, technology and population. The people are the core customers of Best Buy, but it is clear that the population growth in most of the continents is decreasing. This indicates that as the older generation is faced out, the younger generation left behind is less in numbers. Thus, Best Buy needs to venture into other markets for sustainability. This report elucidates on the African retail market as an emerging market and focuses on Rwanda as the entry point. The research for this report was done using secondary sources mostly industry reports.

African Retail Market

The African retail market is among the markets developing at a high rate. In a study conducted by Deloitte, it was revealed that the African market is very diverse with the informal retail being widely accepted that formal retail. According to the United Nations Economic Commission for Africa (UNECA), 90% of the retail transactions in Africa occur informally (Dennis and Piatti 2015). However, the middle class in on the rise, which contributed mainly in the modernisation of the retailing market. Again, Africa has become a laboratory for experimentation in e-commerce and mobile, which presents some business opportunities. The African Development Bank estimates that there are 350 million people in the middle class. This has made the region attractive to retailers (KPMG 2016). In the past, most retailers focused on the Sub-Saharan Africa (SSA), which has an urbanisation rate of 3.61%. This market is more sophisticated and mature than the West and East Africa. However, with the kind of saturation experienced in this market most retailers are now opting to expand to other countries such as Rwanda, Kenya, Tanzania, Ghana and Nigeria.

The growth in Urbanisation is one of the critical drivers of growth in the African retail market. Africans are moving to the cities at a high rate. This makes it easier for companies to target specific consumer groups (KPMG 2016). The demographic make-up of those moving to the cities is also favourable for retailers such as Best Buy. As cities in Africa develop, people, move to such cities in search of employment, again, there have been increased foreign investments in Africa over the last few decades, which has reduced the unemployment and increased the middle-income earners. The graph in appendix 1indicates that urbanisation in Africa will continue to increase in many decades to come. This presents an excellent retail market for Best Buy.

Another factor contributing to the growth in the retail sector in Africa is the demographics. By 2014, it was estimated that Africa had over 1.1 billion people. The population growth is still very high in Africa as compared to other continents. As shown in the graph in appendix 2, the population in some of the Africa regions will overtake China and India by 2050. The economic performance in Africa has improved dramatically in the 21^st century. There have been notable increases in GDP and lower levels of poverty in most of the African countries. As reported by KPMG (2016), the SSA economy grew at an average rate of 6.3% per annum from 2001-2013 as compared to 2.9% over the previous 13 years. This is an indication that the GDP per capita grew from US$571 in 2001 to US$1,750 by the year 2013. This expansion was more due to the improved business environment and reduced political risk. Several other African nations are estimated to be in the midst of the fastest developing economies in the world over the next few decades.

In the year 2013, approximately 64.8% of the retail sales in Africa were of retail food sales. Among the top retailers in Africa, including Shoprite Holdings, The SPAR Group, and Pick n Pay, which are all involved in the retailing of food and beverages (Dennis and Piatti 2015). The African market has been a dumping site for surplus products in the developed countries. However, things are changing. As reported by the African Business magazine, consumers in Africa are now making specific demands with good quality and better prices being considerations. Much of the growth in consumer spending is spiked by the increased appetite for technology-based products. From mobile phones, gadgets, washing machines, to cars, spending on technological goods is increasing in the region. The Toyota Company has already established several plants in Africa to cater for the big market. East Africa is the highest lucrative destination for technological products. Shipments of PCs to East Africa increased by 76% in 2016. In Kenya alone, the sale of mobile phones has increased by 200% since 2009. Much of the technological products are imported from American and European countries (African Business Magazine 2012). A technological retailer for technological products would consider the East African market as the entry point due to high demand.

E-commerce in Africa

Connectivity to the internet remains an issue in some of the countries in Africa. However, the situation is dynamically changing for the better. Today, 31.2 % of the pollution access internet in Africa. Though this is lower than the global average of 40%, it still represents a high market for e-commerce. The growth in telecoms over the last few years has been fastest in Africa as compared to other areas. As estimated by Deloitte, around a tenth of the land mass in Africa is covered by mobile internet services (Wixcey 2014). The subscription of mobile phones is expected to grow to 97% by the end of 2017. Again, it is expected that there will be more than 334 million smartphone users by the end of this year representing more than 30% of the population.

This growth in telecommunication technology has allowed the Africans to jump the landline infrastructure. Africa continues to experience increased growth in the adoption of digital technology including mobile payments, e-commerce and digital content. A case in point is the use of M-Pesa a mobile payment system. Developed in Kenya M-Pesa and launched in the year 2007 by Safaricom makes it easier to pay for small transactions in Nairobi than in London (Wixcey 2014).  The M-Pesa has made e-commerce very easy in countries like Kenya where one does not have to skim. One can easily make an online order and then make the payment using the mobile phone. The good thing with M-Pesa is that one does not have to give any financial details such a credit card details to the company, which makes it safer. As estimated by Mckinsey’s Global Institute, Africans will be buying goods worth US$475 billion by 2025 (Gbadamosi 2017). Nigeria is the most prominent e-commerce market owing to its high population. However, most of the people in Africa remain offline, but the situation is changing due to the intake of mobile phones.

In a study conducted by KPMG on consumer preferences and behaviours about online shopping showed the number of online transactions per person per year to be 11 in the African market (Kruh 2016). Again, 63% of the online purchases in the African market were PC’s, and the percentage is higher than any other place. Most of the online consumers make a decision based on promotions, brand, product features and online reviews. The study also showed that the 56% of the online customers made their recent purchase from an online-only retailer, 11% of manufacturers and 28% of retailers’ websites (Kruh 2016). While in the developed countries e-commerce is standard, it is still developing in the African continent. Most of the people fear the insecurity associated with online purchases such as skimming, but with suitable security measures, the African market is profitable to tap in. There are several other challenges facing the e-commerce market in Africa such as mistrust, logistics and fragmented markets but still some countries have embraced e-commerce. The adoption of e-commerce varies from country to country which makes Africa a sleeping e-commerce giant.

Rwanda’s Business Environment

Economically, Rwanda has been pretty well over the last 15 years. According to data from World Bank, the country has grown from a GDP of US$1.677 billion in 2002 to US$8.376 billion in 2016. This has been attributed to a 7% growth in the economy per year (World Bank 2016). The growth in the economy has been facilitated by the adoption of structural reforms by the current government under the guidance of President Kagame. The country, which was once affected by tribal conflicts, has now become an open economy. Corporate and personal taxes are moderate with an efficient regulatory framework that attract private investors. The top corporate and personal income range at 30%. There are other taxes such as value added tax, which makes the overall tax burden to be 14% of the total income. In terms so development, the government has been, spending 27.5% of the GDP and the budget deficit is an average of 3% of GDP. 34.6% of the GDP is equivalent to public debt. By 2016, the population in the country was 11,917, 508 (The Heritage Foundation 2017).

The Rwandan government facilitated structural reforms to attract investors. A study conducted in 2014 by consultancy, A.T. Kearney revealed that Rwanda is the highest attractive retail market in Africa for those looking to expand on the continent. Rwanda has made tremendous leaps I rebuilding the country after the 1994 genocide by developing infrastructure and making it easy to start a business. The macroeconomic indicators in the country reveal enticing opportunities for international retailers. As cited by the World Bank, it is now easier, less expensive and fast to operate a business in Rwanda than most African countries (World Bank 2016). The report by Kearney also revealed that Nigeria has the highest population and has the second biggest economy in the region. However, it is also the most terrible market to crack owing to the impervious regulations and lack of space for development. Woolworths, a retailer from South Africa, closed shop in 2013 citing the high cost of doing business in the country. Though the Rwandan economy is lower as compared to other countries, its dedication to de elopement has made it the best destination for retailers.

The application of digital solution as well as the adoption of technology has made it easy for both the public and private sectors to offer services efficiently at less cost. This has also presented business opportunities for private investors. One of the major drivers of the Rwandan economy is the ambitious plan by the government to make the country a regional high-tech hub. The plan has been rolled out in several phases. The first phase from 2000-2005 aimed at creating policies favouring ICT initiatives. The second phase from 2006-2010 concentrated on building ICT backbone including the setting the fibre-optic cables (Rwanda Government n.d). The third phase concentrated on speeding up the introduction of services to allow the uptake of new technology. This involves developing skills and integrating ICT cultures in schools to create IT, professionals.

The uptake of e-commerce in the country is also promising. An estimated 1.2 million of the people in Rwanda regularly access the internet. Internet speed and access are improving at a high rate given the technological advancement in the country. The government is committed to the development of e-commerce and has instigated measures to protect online services users. This has been done by adopting globally accepted standards such as particular information security standard. The government on its part provides services through e-government portals to encourage the use of online services (Rwanda Government n.d). Though e-commerce is new in the country, it is quickly developing given the tech start-ups and international players entering the country. The use of debit and credit cards is limited mainly to hotels and restaurants. However, the use of mobile payment is widely accepted due to the increased number of mobile phones.

Entry Mode

The most appropriate entry mode in the Rwandan market would be a foreign direct investment. Best Buy should acquire its facilities in Rwanda. The technological facilities such as the internet are readily available in Rwanda given that fibre cables are already laid. However, some facilities such as warehouses can be rented or bought. Several malls are coming up in the country where the company can acquire a space. The advantage of direct foreign investment is that it provides a high degree of control over the operations. With direct control, one can better understand the customers and the business environment (Moran 2012). A horizontal direct investment occurs when the investor establishes the same operations in a foreign country as the home country. A vertical investment occurs when the investor establishes related business activities from the primary business. In this regard, Best Buy can adopt the horizontal direct investment but tailor the products for the African market.

Based on the infrastructures available, Best Buy should establish a physical store in Kigali the capital city of Rwanda. This will serve the Rwandan market as well as act as a store for other markets. The East African market as discussed earlier is experiencing increased demand for technological accessories such as mobile phones with Kenya leading. To capture other countries in East Africa and Africa at large, Best Buy should establish an online platform tailored for the African market. Again, by collaborating with courier companies such as DHL, the cost of delivery can be lower than establishing its infrastructure. Once the company captures the Rwandan market, it can then be able to venture into other markets in terms of physical stores.

Challenges and Opportunities

One of the major challenges that Best Buy can encounter is the availability of cheap counterfeit products in the African market. The Africans have a culture of accepting counterfeit products based on price. Based on the economic conditions and the incomes per capita, being aware of the product price more than the quality is common in Africa. Thus, counterfeit goods from China and India find their way easily to the African market. The culture of corruption, which seems to have taken roots on the continent affect the efforts to combat the fake products. However, for Rwanda, massive efforts are being taken to combat this disease. A good demonstration is the seizer of counterfeit goods worth Rwf14 million in 2015. The seizer was done by the Rwandan National police in collaboration with Interpol (Inagwaho & Attaran 2013). The government is installing necessary measures to ensure fake products do not enter the country.

One of the major opportunities presented to the company is the large market available in Africa. Rwanda alone has a population of over 11 million people. Other countries such as Kenya in East Africa have higher populations. Also, the economies in this region are in the growth phase, and if Best Buy manages to grow together with them, then it can benefit in future when the markets in developed nations become obsolete as population decreases. In Afric, the population is on the rise and in future years will be the highest in the world. This presents Africa as the place to invest for sustainability and growth.

Recommendations

The Sub-Saharan Africa market is more developed than other African regions. However, as discussed earlier, the Sub Saharan Market is very saturated, and retailers are opting for upcoming economies such as Rwanda. Other areas such as Kenya and Nigeria presents better markets but have other diverse challenges. Kenya, for example, is faced with the challenge of counterfeit goods while Nigeria has opaque regulations. The Rwandan market is the friendliest for retailers, and it is among the fastest growing economies in the world. Thus, Best Buy should inject investment in the Rwandan market by establishing its facilities. Analysis has shown that the Rwandan government is committed to ensuring that investors have an easy time setting up their business in the country. Again, the regulations in the country are specific, and the tax rates are moderate.

Conclusion

Sustainability is the challenges being faced by many businesses today. As the world evolves, economic and social changes occur thus displacing some businesses. The traditional landlines, for example, are almost becoming obsolete, and it is unfortunate for companies that did not adapt to the new technology. The challenge of sustainability is forcing businesses to be innovative and to adapt to the new market dynamics. Best Buy is currently doing well, but the same cannot be said for the future. This is why the company needs to venture into the African market and use Rwanda as the entry point. The African retail market is promising, and Rwanda is an emerging market in the world economy. In any business, there are challenges, and Best Buy can anticipate the challenges to face in Rwanda. The opportunities available in Africa at large can overcome the challenges. The business potential in Africa is much unutilised.

References

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Dennis, A. and Piatti, D., 2015. African Powers of Retailing: New horizons for growth.

Gbadamosi, N 2017, The millennials cashing in on Africa’s internet addiction, in , CNN Style, viewed 2 November 2017, <http://edition.cnn.com/style/article/africa-e-commerce-fashion/index.html>.

Inagwaho, A & Attaran, A 2013, Rwanda’s approach proves perfect antidote to counterfeit drugs | Agnes Binagwaho and Amir Attaran, in , the Guardian, viewed 3 November 2017, <https://www.theguardian.com/global-development/poverty-matters/2013/jul/03/rwanda-counterfeit-drugs-medicines-health>.

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Moran, T., 2012. Foreign direct investment. The Wiley-Blackwell Encyclopedia of Globalization.

Rwanda Government n.d., Rwanda – ECommerce, in , Export.gov, viewed 3 November 2017, <https://www.export.gov/article?id=Rwanda-ECommerce>.

The Heritage Foundation 2017, Rwanda Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption, in , Heritage.org, viewed 3 November 2017, <http://www.heritage.org/index/country/rwanda>.

Wixcey, N 2014, The Deloitte Consumer Review – Africa: A 21st Century View | Deloitte | Consumer Business | Insights | Nigeria, in , Deloitte Nigeria, viewed 2 November 2017, <https://www2.deloitte.com/ng/en/pages/consumer-business/articles/consumer-review-africa.html>.

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