Advantages of Nissin Foods Export to Kenya

Introduction

The main purpose of this report is to highlight the advantages for Nissin Foods to export its product to Kenya, based on the market attractiveness. With the help of technological advancements and overall growing demand of products like Instant Noodle worldwide, many companies are going global and getting themselves involve in International business.

Instant Noodle that is also known as instant ramen is able to create an instant renaissance in the world food industry. The product Instant Noodle can be considered as one of the first product to be launched in the global market under the category of ready-to-eat.

Despite the size and the nature of the company it is very important to have proper strategies and proper business plan before expanding business internationally. This report will highlight the market attractiveness of Kenya mainly based on the facts and figures of Kenya food market. A proper PEST analysis is also included in the report that will provide a clear view about the Kenyan market.

About Nissin Foods

Momofuku established the company Nissin Foods in 1958. The company later started manufacturing its Cup Noodle that was considered as a revolution in the industry mainly because of the fact that it can be packaged, prepared and served in the same cup. Later in 1973 Nissin entered in US market and later with time it expanded its operation in various countries. The company offers its products in various packaging, flavors and sizes as it helps the company to serve the public at large (www.nissinfoods.com).

Country / Market Attractiveness

Kenya is located in Eastern Africa, bordering with the Indian Ocean, between Somalia and Tanzania. At present the overall population of Kenya is expected to be at 40million, occupying an area more than twice the size of Nevada (Githaiga).

At present the economic recovery strategy of Kenya is targeted to achieve an overall 8% of growth rate and also aiming to achieve industrial status of Kenya by 2025, by creating approximately 500,000 jobs a year in the process (Githaiga). With providing access to major ports like Mombasa, and well developed financial markets Kenya is generally considered as an important player in East and Central Africa.

Over the last few years investment into Kenya has grown at a rapid speed, many international firms have invested in the country in various sectors, specially with an overall strong focus on the potential offered towards expanding consumer market. Kenya in return also offers its investors a natural gateway to the rest of the East Africa region, that itself is considered as one of the most exciting and rapidly growing regions in the world. By gaining access to the Kenyan market, it will be easier for companies to target South Sudan and Ethiopia to market their products, both of which have the potential to be substantial markets in the coming years (Ernst & Young).

Pest Analysis

 Political

As far as the Political aspects are concerned for the country, Kenya can be considered as a bit lucky as compare to its other neighboring countries because of its less turbulent political system. After the last elections in the country, it’s politically stable at the moment, besides Kenya has recently accepted a new constitution that upon implementation will result in creating more significant and positive impact on the country as a whole (Githaiga).

At Present the government in Kenya can be considered as republic, where the major political party is Party of National. In Kenya the corruption perception index is ranked at 44^th in Africa that is 154 overall (Ernst & Young).

 Economic

Over the years Kenya has established a liberalized external trade system that has also supported its market-based economy with the help of few state owned infrastructure enterprise. Because of its location, Kenya is considered as the Central Africa hub for its various financial, communication and transportation services, resulting in improving its overall economy. In Africa, the Kenyan stock exchange is ranked on number 4 mainly because of its market capitalization.

The current aim of the Kenyan government is to improve its economy and to be considered among the Asian Economic Tigers (Githaiga).

In 2010 the GDP per capita of Kenya in US4 was almost 795, with overall GDP annual growth of 5.6%. Over the years Kenya as a country has been able to build strong trading relation with countries like UK (11.3%), Netherlands (9.8%), the list also comprise of India, China and US as well (Ref:  Appendix A).

With above shown graph, its obvious that over the years Kenya has now become a lucrative location for international companies to consider such market in terms of selling their product or services. Kenya currently ranked on number 12^th in Africa in terms of its ease of doing business in, besides according to Global competitiveness index Kenya is ranked as 11^th.

 Social

As a country Kenya is considered as nation with great ethnic diversity, among the large and most popular ethnic groups are the Kikuyu, Kamba, Gusii, Luhya and Luo, besides in Kenya the Maasai culture is also very popular, despite the fact that this group is a minority but because of their upper body adornment and jeweler they are more popular.

At present Kenya’s population has witnessed a great increase over last few years, where one of its key strength is that 73% of Kenyans are under 30 years of age. Most of the Kenyan population is bilingual in English and Swahili, still majority of them speak their mother tongue of their ethnic tribe. According to a recent survey, majority of the people living in Kenya are Christian where minority comprise of Muslims, Hindu, Traditionalist etc. (Githaiga).

Technological

In terms of technology, Kenya is seeing a rapid rise that can be witnessed in terms of growing number of mobile phone apps built by local designers. Majority of the youngsters are showing their interest towards technological advancements. Even the Kenyan government is taking the necessary steps towards bringing in more technological advancements in the country (Gatehouse 2012).

Competitive Market Analysis

• Local and International companies operating in Kenya (Ref: Appendix B).

Why Nissin Foods Instant Noodles will be successful in Kenya.

Nissin Foods has a huge range of products that it can export to Kenyan market. The company at present already exporting and marketing its product to various countries based on their attractiveness and the potential for the company to further grow in that region.

Considering the Kenyan market for Nissin food, there are various aspects and reasons based on which it is very likely that the company will enjoy long term benefits in the region and if its products are marketed properly it is very likely that Nissin food will be able to gain access to other countries in the same region.

There are various factors on which Kenya’s attractiveness is based on; such factors favor both local and foreign investments including:

The political stability, Overall stable economy, Competitive investment incentives supported by the government, Guarantees to investors, Its strategic locations, Overall country Tax system that is very friendly, Emerging financial market, Simple and basic investment procedures, and various others.

Both local and foreign investments in to Kenya are very much supported by the Kenyan Government, In the Kenya’s industrial sector multinational companies make up a large percentage. It is mainly because of the Kenyan government policies and terms because of which many international companies are encouraged to make investment in the Kenyan market that will further result in providing more employments, and at the same time will also promote backward and forward linkages and transfer of technology.

For companies like Nissin Foods, Kenya is open for businesses and investments, even the Kenyan government support foreign investments as it not only improve the Kenyan economy but at the same time will eventually result in creating more jobs. Based on Kenya infrastructure and its location the Kenya has enormous potential as an investment destination, mainly because of the fact that it offers an attractive combination of growing economic infrastructure with a vibrant market economy. Kenya is considered as a communication hub for East Africa, and also the main transport hub to most of the other African countries in the region. One aspect that will help Nissin Food would be the cheap and educated manpower in Kenya that will benefit the company in marketing its products. In 2010, it is estimated that the Kenyan GDP will constantly improve over the coming years.

Market Entry Strategy

With rapidly improving of Business environments in the region, better infrastructure, and promising income levels Kenya is set to play its key role in the economic development of African market. It is expected that by 2020 the consumer spending in the region will reach nearly $1trillion, which is good positive sign for Nissin Food. Based on such information and data, many companies have already started to export their products and services in the region, however at the same time it is very important for many companies to adjust their strategies and overall expectations while entering the Kenyan market.

As Nissin Food is willing to export its Noodles in the Kenyan market, which classified as consumer product, it will be important for the company to select the most reliable partner or service provider in terms of their Logistics, as product distribution will play a major and key role in the industry. (Accenture) (Ref: Appendix-C).

Based on the above image, it is important for companies to completely understand the market infrastructure, their requirements, terms and policies specially when entering an international market.

On various occasions, companies can use a simple framework in order to be able to execute their entry strategy effectively, regardless of the markets or segments on which the company prefers to focus. As shown in the above Figure, the framework encompasses the full in depth analysis of doing business in any market, from gaining insights on the biggest opportunities to deploying effective marketing campaigns that will eventually support the company’s offers (Ernst & Young) (Ref: Appendix-D).

For any company either small or large, its decision of entering any foreign market is generally considered as a very key decision; regardless of the nature of the industry the business will be operating in companies usually face a very critical in selecting the best market entry mode. In general there are various options available for organizations to consider entering in foreign markets, such as Direct and Indirect Exporting, Franchising, Licensing, Mergers or Acquisitions etc. (Hollensen 1998)

Keeping in mind the nature and industry of Nissin Food that it will be targeting in Kenyan market it will be better for the company to consider the following options for entering the Kenyan market.

• Strategic Alliance
• Distributors

 

 

Cooperative Arrangement

A cooperative arrangement is a partnership collaboration based on a contractual agreement that is generally based by a mutual balance of interest.

 Joint Ventures

Cateora and Graham (2002) define a joint venture as “a partnership between of two or more participating companies that have joined forces to create a separate legal entity”(p. 336). Joint ventures generally base on two attributes; cooperation and autonomy. Another important factor to consider, that will favor joint venture entry, is the existence of oligopolistic competition. The Noodles as a product in the Kenyan market will usually be characterized by a small number of competitors that at present will be next to zero, it is because of this reason that the foreign companies will prefer to have a joint venture with some local distributors or importers of such products and once the product develop enough demand in the market then Nissin Food can consider setting up their own office in the market.

Strategic Alliance

For global managers, strategic alliances are mainly considered as tools. Strategic alliances are termed as a wide range of cooperative partnerships and joint ventures between local and international firms.

According to Hollenson (1998) cross-border alliances may take various forms and may also become one of the most popular methods of internationalization. This can be achieved if Nissin Food makes some lucrative offer to local distributors or importers in the Kenyan market, which will eventually result in profiting both parties.

The difference between joint ventures and strategic alliances:

“The formal difference between a joint venture and a strategic alliance is that a strategic alliance is typically a non-equity cooperation, meaning that the partners do not commit equity into or invest in the alliance” (Hollenson 1998, p. 247).

Marketing Plan Highlights

For Nissin Foods, in order to be able to successfully market its product in Kenya and at the same time penetrate in the local market, its marketing strategy will be of prime importance.

Majority of the companies usually accustomed to stimulate their demand through Western-style marketing and other promotional approaches that will have to rethink their overall go-to market approach and strategies for the Kenyan market (Hatch 2011).

Most of the Kenyan consumer usually buys from informal street vendors and kiosks, and majority of the consumers make their purchases in more erratic, ad-hoc pattern as compare to other Western and Eastern consumers. Besides in Kenya the traditional media such as television and radio will not be effective, as it do not always reach the masses, specifically those living in rural area or in urban slums. Based on such aspects, it will be important for Nissin Food to identify strong local partners in order to be able to help them access informal markets and obtain various information that they prefer to use in their offerings and messages. It will be important for Nissin Food to spend their marketing and advertising much budget wisely, based on the social life style of the locals of Kenya. The overall TV, Radio and print campaigns will not have the same result as it will have in other western and eastern markets, mainly because of the fact that Noodles will be introduced in the Kenyan market for the first time. So rather than spending more budgets in advertising, it will be better to do sampling in schools, shopping centers, malls etc.

In particular, when attempting to reach lower-income segments, Nissin Food must ensure that its promotions and marketing efforts are mainly targeted on the community, and are visible in the market through relevant media and campaigns (Hatch, Becker & Zyl 2012).

 Marketing objectives

Here the proposed marketing objective for Nissin Food would be to attain a minimum level of market share within a year (McCarthy & Jerome 2000). At the same time the company should be able to achieve an increase in sales by 10% in two years time.  Nissin Food should be aiming to grow at the rate of 12% per year for the next three years. It should adapt marketing strategy to increase the brand awareness among its existing as well as potential awareness within six months time (Kotler & Keller 2006).  

Financial Objectives

To be able to increase profits by 2% a quarter

Maintain customer acquisition cost at the same level

Five Forces Model

The “Five Forces” model developed by Michael Porter (Porter 2008) is reflective of the state of competiveness in the market. The competitiveness is determined by 5 essential factors (or forces) having bearing on the bottom-line of a firm.