Market attractiveness: Angola

1.0 Introduction and study background

The attractiveness of foreign markets is one of the main factors that organisations intending to pursue an internationalisation strategy must take into consideration. The accuracy with which market conditions are understood often makes the difference between success and failure for such organisations (Robins and Gilles, 2008).  While data exists at the international level on the average conditions and challenges in countries based on their classification, it is important to appreciate that country specific research is bound to bring out information that would be more useful to the investor.

For instance, Angola is classified as an LDC (Least Developed Country): a category of countries generally believed to have precarious political situations (Vines and Weimer, 2011). However, an examination of the Angolan political situation indicates that the country is bound to remain politically stable in the foreseeable future with the risk of civil war and countrywide unrests being very low (Vines and Weimer, 2011). On the other hand, the Angolan ruling class is comprised of political elite that is keen to control resources which they in turn use to manipulate the opposition, the public and effectively perpetuate themselves in power. This would imply the risk of political interference among investors whose financial strength may be the envy of the same political class. These and other factors highlighted in this study are bound to influence the investors’ assessment of the level of attractiveness of the Angolan market.

Upon the gathering of the relevant information, it then becomes necessary to determine the mode of entry. Most internationalisation theories recommend that entry modes be settled upon after considering factors such as the level of experience in the market, the risks involved and considerations on the product life cycles among others (Wheelen, 2008). It is also imperative that certain strategic functions in organisations such as marketing be adapted to suit the target foreign markets. This paper carries out an assessment of the Angolan market with an aim to establish its level of attractiveness to foreign investors with a focus on marketing for hospitality and tour-based organisations. It also makes recommendations on the best entry modes as well as implications for the marketing strategy of such organisations.

2.0 Market analysis of Angola

2.1 Environmental factors

The macro environmental audit is best done under the framework of the PESTEL model which analyses market environments based on politico-legal factors, social, economic, environmental and technological factors (Wheelen, 2008).

Politico-legal factors focus on the ruling class, their attitude towards private enterprise as well as risks associated with the political stability in a country. Angola can be said to be relatively stable having emerged from a 4-decade period of incessant civil wars (Vines and Weimer, 2011). The country is considered to be a democracy whose functioning is based on the doctrine of separation of powers between the executive, the legislature and the judiciary. However, observations indicate that the executive has a strong hold of the legislature with the political system vesting enormous powers on the presidency. The constitution of the country designs a system through which the president is not elected directly by the people but is elected indirectly through parliamentary elections (Vines and Weimer, 2011). During such elections, the party leader of the winning party automatically retains presidency. This system therefore creates an elite class clustering around political parties and whose instrument of survival is the manipulation of the country’s wealth in order to perpetuate their stay in power. This results in a situation where the country’s economic fortunes do not trickle down to the masses hence creating a majority poor in the country. While this may heighten the risk of social unrests, the government has been skilful in using welfare hand-outs to calm the public (Vines and Weimer, 2011). The risk of catastrophic social unrests is further diminished by the country’s long civil war history that has seen a majority of its population loathe war and the risks associated with it which includes insecurity, displacement, hunger and communicable diseases among others. Former rebels have also been effectively neutralised with most of them disarming and converting into democratic parties. The country is therefore likely to remain politically stable in the next 10 to 20 years.

Economically, the Angola is considered to be one of the richest countries in terms of resources with the country been known to heavily rely on oil revenues. This means that the country’s economy is heavily reliant on the international fuel prices which have been on an upward trend in the last decade (African Economic Outlook, 2012). This has bolstered the country’s GDP growth rates with projections being that the country’s economy is to hit the 10% mark in 2012. The economy had however taken a serious hit in the period 2007-2010 with the GDP slowing to as low as 1.6% in 2010 (CIA Factbook, 2012). The economy continues to be heavily reliant on oil and the extraction industry with the service industry including the hospitality industry only making a modest contribution to the country’s GDP. Theirs is also inequitable distribution of resources with the majority of the population in the country living under abject poverty. The level of infrastructure development is also largely concentrated in the urban centres with the rural areas being largely underdeveloped. While this may create an opportunity for rural tourism, it may also jeopardise tourism efforts with poor access being the main barrier. The country’s main attraction for tourists is its natural sceneries and national parks where wild game is protected for tourists (Africa Travel Magazine, 2012). The usage of the internet is still low with the country having among the lowest proportions of people with access to the internet in the world.

The Angolan population is largely poor with over 60% of them lacking proper sanitation and over 40% lacking access to clean drinking water (Vines and Weimer, 2011). The rural-urban migration is at an all-time high with the country’s capital Lusaka said to host over 1/3 of the population. This makes access to housing and sanitation a major issue. Equally low are the literacy levels with the vast majority falling under the illiterate category. The country’s most recent ranking by the UNDP (United Nations Development Program) indicates that the country is among the least developed countries in terms of the level of human development (UNDP, 2012). With a Gini coefficient index of 62, Angola remains one of the most unequal societies in the world. The Gini coefficient ranks from 0-100 with 100 being the height of inequality (UNDP, 2012). While the economic performance and per capita incomes may appear impressive, the masses live in abject poverty and this implies that the purchasing power among them is extremely low.

2.2 Implications: opportunities and threats

The market conditions affect various strategic decisions that must be made by the organisations in the target markets. Given that the political situation in Angola is stable and is likely to be stable in the foreseeable future, the political risk is low. On the other hand, there are no structures in Angola demanding that political leaders avoid situations that could give rise to a conflict of interest. Such leaders therefore tend to be dominant investors in the market and this heightens the risk of political interference especially a direct competitor is a senior government official. However, observations are that high level involvement mostly affects the extraction industries with other minor sectors such as the hospitality industry being left to private enterprise. The overall assessment of political risk is therefore low. The market is therefore worth investing into from this perspective. The government’s focus on the economy emphasises on the extraction industry in what appears to be at the expense of other industries.

The fact that the majority of the population are poor implies that industry players should consider two main options in their marketing strategy: to focus on the extremely wealthy elite by providing premium services; or to focus on the masses and provide low priced basic services. While the former approach may generate good returns per customer, the numbers involved may be too few in the face of heightening competition. This is unlike markets such as China where the size of the luxury market is on an upward spiral. On the other hand, targeting the poor masses would require that very little margins are made per customer with the focus being on exploiting the large numbers of people involved.

The alternative approach would be the need to weigh between the promotion of local tourism vis a vis the promotion of Angola internationally as a remarkable tourist destination. The largely undeveloped country is still rich in natural scenery in addition to national parks where unique species of wild animals are protected. The poorly developed infrastructure could limit access to tourist attractions and hamper progress in the industry. However, this could be an opportunity to be exploited in the face of the growing popularity of rural tourism where guests visit rural areas to reconnect with nature and appreciate the ways of life of people from perceived ancient lifestyles. Given that the masses are living in poverty, focus for premium industry players should be on the elite and international tourists. The political stability in the country is likely to help in ensuring the success of international marketing endeavours while the emerging wealthy elite would be drawn to the luxury and unique experiences offered by industry players.

 As a marketing company, these would be the basic approaches that would be fronted to clients in the tourism and hospitality industry players in Angola.

3.0 International entry strategies

3.1 Criteria for selection

Once the decision to enter a foreign market has been made, the next stage involves the decision on the entry modes that are to be employed. Among the most common modes includes direct exportation, use of independent agents, establishment of sales subsidiaries, joint ventures and the establishment of fully owned subsidiaries (Barllett, 2008). Before any entry mode is selected, a number of factors must be taken into account. To begin with, the level of risk exposure and the amount of investment required must be taken into account. Where an organisation is relatively weak financially, cheaper models are selected while larger and stronger organisations may be financially prepared to make heavy investments in the foreign markets (Barllett, 2008). The risk exposure on the other hand is closely related to the level of knowledge and the level of exposure in the foreign markets.

A more comprehensive method weighs the level of exposure in a market as a basis for determining the level of commitment of resources allowable in line with the recommendations of the Uppsala Internationalisation theory (Johanson and Vahlne, 2009). This model calls for an incremental approach to internationalisation with entry methods that require lower levels of commitment of resources being put to use while the organisation gains knowledge and exposure in the market. As the level of exposure and knowledge increases, more resources can be committed. While the traditional Uppsala model majorly focused on commodity based organisations, a modification of the same can be applicable to the service industry with the incremental approach ranging from the use of independent agents, establishment of joint ventures to the establishment of fully owned subsidiaries. (Johanson and Vahlne, 2009)

3.2 Agents

Independent agents are individuals or agencies that can be subcontracted by an organisation to distribute its products and services (Lowe and Doole, 2008). The agents remain relatively independent with the contractual pact often providing for payments in form of commissions for work done. The use of agents tends to be very convenient for organisations mainly dealing in tangible commodities. However, service organisations with a high need for a measure of control over the actions of the agents may find the method to be difficult to implement. Despite this handicap, this entry method is known to be among the least costly methods and one that organisations can use without incurring unacceptable levels of risk (Peng, 2009). Moreover, the agents in question tend to be well knowledgeable about the market in question and can therefore provide the necessary market intelligence.

3.3 Joint ventures

Joint ventures are contractual pacts between organisations which agree to come together to pursue a shared goal. In most cases, two organisations tend to form a third subsidiary whose management and operation is shared by both partners (Hit, 2009). This form of investment allows the partner companies to share the financial burden of establishing such a venture. It also allows for the pooling of technologies and business acumen between the two companies. For the foreign partner, joint ventures tend to provide the most convenient avenue though which they can penetrate the market by ensuring that they can have access to the partner’s already established client base. This feature is very critical for a marketing organisation whose success mainly depends on their mastery of the unique characteristics of the market (Johnston and Tennens, 2005). Some levels of knowledge can only be acquired through experience especially when it calls for mastery in language and communication techniques in the target markets.

On the other hand, joint partnerships tend to be quite fragile especially where the organisation cultures between the partners are significantly different. There could also be suspicions that may arise as each partner schemes to take control of the joint venture hence heightening the risk of failure (Johnston and Tennens, 2005). However, the weaknesses tend to be easy to resolve or pre-empt with comprehensive negotiations and establishment of clear lines of responsibility within such ventures. Considering the arguments presented, the use of joint ventures would be an appropriate entry mode into the Angolan market.

4.0 Implication for the marketing mix/ strategy

4.1 Focus on developing countries/ least developed countries

Developing countries tend to share a number of common characteristics. For instance, they tend to lag their developed counterparts in the literacy levels as well as purchasing power (Hit, 2009). The countries also tend to be characterised by poor infrastructure and low levels of technological advancement. The poverty levels tend to be higher than those seen in the developed countries. Political stability tends to be low with most governments appearing to vest more powers in political offices than in the established democratic institutions (Hit, 2009). Some of the countries that belong to this category include Angola, sub-Saharan countries, Philippines, Haiti and all West African countries among others.

In the case of Angola, the country is renowned for its poor population despite it possessing rich minerals and vast oil deposits. This poverty is characterised by lack of decent housing, hunger, lack of clean water and high unemployment levels (Vines and Wilmer, 2011). The country’s economy appears to principally focus on its oil revenues and the wider extraction industry. Access to the internet is low and so is the level of literacy. In addition to these, the level of infrastructural development is still low and so are the levels of technological advancements (EDC Economics, 2012). On the flipside of these adverse conditions is the existence of breath taking natural sceneries; and a rural lifestyle that would be a good source of attention for the growing rural tourism tendencies around the world.

4.2 Necessary modifications to marketing strategy

For a marketing strategy to be effective, it must resonate well with the characteristics of the target market. Every market has its own unique characteristics and the difference between such markets is determines the extent to which such marketing strategies should be modified (Himmelspach, 2008). The marketing mix is at the centre of any marketing strategy as it plays a critical role in not only how a product or a company is perceived but it also determines whether or not the message sent is received by the target audience as intended. The marketing mix for services include price, product, place, promotion, people, process and physical evidence (Himmelspach, 2008).

Product defines the nature of product or service on offer. Modification is necessary to ensure that the service that is to be offered resonates well with the demand and characteristics of the market (Hubbard, Rice and Beamish, 2008). For instance, a marketing company would provide services ranging from advertisements to sales promotions, conduct of transactions, gathering of feedback online and others. However, in Angola where access to the internet is limited, it would be difficult to gather feedback online hence the need to exclude this service (Vines and Wimer, 2011). The concept of price tends to go hand in hand with target marketing. Pricing strategy plays a key role in determining the kind of clientele that a business is likely to attract. It also determines the extent to which the product sold can be consumed by the market. The average price levels in the developing countries are lower than in the developed countries. This is due to differences in currency strengths as well as the purchasing power of in the markets in question. Pricing must therefore conform to the local conditions as well.

Perhaps the most significant element in the marketing mix is promotion. Promotion refers to all the processes that an organisation uses to communicate about itself and its products to the target market (Johnston and Tennens, 2005). In most developed countries, the promotion element would factor in traditional models as well as online models in line with the growing trends in the usage of the internet. Advertisement, use of social marketing, viral marketing and others are among the online approaches taken by organisations in developed countries (Himmelspach, 2008). In a country like Angola where literacy and access to the internet are both low, traditional forms of marketing would appear appropriate. The use of television, print media and radio advertisements would appear to be most appropriate.

Process is the element that deals with the manner in which the service is delivered to the customers (Johnston and Tennens, 2005). In this case, the customers would be the organisations that need to obtain marketing services to enable them excel in the tourism and hospitality industry. In the developed countries, consultations over electronic media such as through emails is quite common where the need is assessed and proposed solutions developed before the client choses the solutions they would opt to go for. Payment processes also tend to be well refined with the option of using electronic payment systems being increasingly popular. In a developing country such as Angola, electronic communication tends to be restricted to personal communications with most organisations emphasising the need for print in formal communications (Vines and Weimer, 2011). The infrastructure for electronic communication is also largely underdeveloped with online payment systems being virtually non-existent. This therefore calls for the modification of the business process.

5.0 Conclusion

The internationalisation process calls for the understanding of the target markets and this implies the need to conduct comprehensive research. This research is especially critical where the organisation intends to operate independently in such a market. To lessen the exposure associated with lack of exposure, certain entry modes such as the use of joint ventures may be necessary. With a joint venture, the foreign organisation can tap into the market intelligence held by the local partner in addition to gaining access into an existence clientele.

Angola is a developing country and is characterised by poor economic development, poor population, high levels of inequality and a rapidly rising rural-urban environment. However, the country continues to be politically stable with all estimations intimating that the political stability is bound to be maintained in the foreseeable future. The political risk is therefore low. In addition to this, the country continues to enjoy vast resources despite the high levels of poverty with the political elite appearing to manipulate the economy and embezzle the funds. This situation is likely to lead to the creation of extremely wealthy elite who’d form a good target market for the premium market. With the application of the right strategy, such persons can be crucial sources of business for the hospitality industry. The overall assessment is that Angola would be a market worth entering into as a foreign organisation in marketing.

However, success would largely depend on the accuracy with which the company’s marketing strategy and marketing mix fit into the new marketing environment. Being a Western company, it would be necessary to consider that the markets would be significantly different. For instance, the purchasing power, preferences, literacy levels and means of communication are bound to be different. This calls for the modification of elements of the marketing mix such as product, pricing, process and the promotional mix. The latter element appears to be the one that commands the most attention as it requires that the organisation fully understand the spoken and non-spoken language as well as all other cultural and non-cultural preferences before a message that resonates well with the target market can be coined. Success depends on the fit between the marketing strategy and the market characteristics.

6.0 References

Africa Travel Magazine, 2012. Journey to Angola: africa’s land of diamonds. (Online) Available from: http://www.africa-ata.org/angola.htm (Accessed 13 July 2012)

African Economic Outlook, 2012. Angola. (Online) Available at: http://www.africaneconomicoutlook.org/en/countries/southern-africa/angola/ (Accessed 13 July 2012)

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CIA Factbook, 2012. Angola. (Online) Available at: www.indexmundi.com/g/g.aspx?c=ao&v=66 (Accessed 13 July 2012)

EDC Economics, 2012. Angola: Economy. (Online) Available at: http://www.edc.ca/EN/Country-Info/Documents/Angola.pdf (Accessed 13 July 2012)

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UNDP, 2012. International Human Development Indicators. (Online) Available at: http://hdrstats.undp.org/en/countries/profiles/AGO.html (Accessed 13 July 2012)

Vines, A., Weimer, M., 2011. Angola: Assessing Risks to Stability. (Online) Available at: http://csis.org/files/publication/110623_Vines_Angola_Web.pdf (Accessed 13 July 2012)

Wheelen, T.L., 2008. Strategic Management and Business Policy Concepts. 11th ed. Upper Saddle River, NJ: Prentice Hall