Although Nestle is a multinational company recognized worldwide, entering a new market means facing some competition. For instance, in South Sudan, the biggest competitors to Nestle include Global Food Warehouse, Banda Food Group, and AMMADI Company Limited. Understandably, the country is young, as it gained sovereignty in 2011 and has had political issues until 2020 when a peace treaty was signed between two key leaders. Additionally, it consists of a population that can be described as young, as most people are under the age of 18 years old. It would be proper for the company to enter that market through Kit Kat. The aim of this paper is to explain why it is beneficial for Nestle to enter the South Sudan market.
PESTEL Analysis of the South Sudanese Market
Before entering a market, it is essential that a company examines the macro-environmental factors in the nation. This section enables the company that is Nestlé, to recognize opportunities as well as threats by highlighting economic, political, social, environmental, technological, and legal factors (de Sousa and Castañeda-Ayarza, 2022, p. 686). By doing this, it becomes possible to create a plan on how to take advantage of the opportunities and establish ways to avoid the threats. Additionally, it would provide adequate knowledge of the possible solutions for the potential problems of that market.
After gaining independence, the South Sudanese government found itself in a position it had to develop a new country’s regulatory framework whereas maintaining continuity with past systems. The nation still utilizes some legislations enacted during its semi-autonomy period from 2005 to 2009 (de Sousa and Castañeda-Ayarza, 2022, p. 687). It has passed various acts, including the Imports and Exports Act of 2012 and the 2012 Companies Act. However, the regulatory framework remains underdeveloped (de Sousa and Castañeda-Ayarza, 2022, p. 687). There is an Investment Promotion Act that provides the right to transfer profit into and out of the nation.
Nevertheless, most businesses have had problems repatriating profits. This might offer a challenge to Nestle, which would operate as a foreign company in South Sudan. The threat of being forced to only use the profits in the country exists (de Sousa and Castañeda-Ayarza, 2022, p. 688). The solution to this issue would be to approach the government agencies responsible for trade. Since Nestle is a multinational company, it would be easier to reach a deal that allows the brand to control what it does with the profit gained from its Kit Kat investment.
Internal Political Issues
Provided the constant and repeating conflicts with Sudan, South Sudan continues to have a high rate of instability and insecurity, which poses a threat to Nestlé. The outcome is that the situation limits the ability to deploy capital in the country (de Sousa and Castañeda-Ayarza, 2022, p. 688). Beyond the direct danger of violence and difficulty operating in insecure surroundings, internal displacement makes it hard for companies to establish dependable consumer bases and scale operations to be attractive to foreign businesses. Trade has been used before to bring peace into areas of conflict. The company can overcome this by communicating to both parties, the importance and benefits they may gain from the investment in South Sudan.
Limited Talent Pool
The lack of labor is a consistent problem in South Sudan. After many years of struggle and instability, the country’s education system has suffered significantly. The nation is among the countries with the lowest rates worldwide, which makes it hard to source credible staff to scale. Additionally, companies’ access to international talent is restricted as a result of the unofficial expectation that 70 to 90% of positions in every company will be assumed by South Sudanese citizens (Renzi, 2021, p. 303). This is a challenge that is capable of negatively affecting Nestle in terms of human resources (de Sousa and Castañeda-Ayarza, 2022, p. 689). However, the solution to this would be to outsource labor from neighboring countries with a greater population.
Customers’ Purchasing Power
On average, a person in South Sudan earns about $460 per year. In addition to the high inflation rate experienced by the country, it becomes difficult for the South Sudanese people to spend much on items that are not a necessity. However, this could soon change as the nation is developing systems to exploit its oil reserves. It is the most oil-reliant nation worldwide, as suggested by Renzi (2021, p. 303). Oil exports contribute more than 90% of the export revenues, 95% of the government revenues, and about 60% of the gross domestic product (Renzi, 2021, p. 303). There are plans to sell fourteen blocks of oil in an attempt to increase production to pre-war standards of 350000 barrels daily.
Moreover, the state has the third-largest oil reserves in the sub-Saharan region of Africa. The estimated quantity is 3.5 billion barrels, with only a third explored (Renzi, 2021, p. 303). The problem of low purchasing power can change once the plans are actualized, even though more machinery, technology, and talent, are being offered to the country by a few first-world nations (Renzi, 2021, p. 303). Once people start earning more, it would ensure that the consumers have a strong purchasing power.
Population Growth Rate
As wealth distribution between South Sudan and Sudan at the time of independence was determined partly by the relative populations, the government in Khartoum had an incentive to exaggerate the numbers. Much criticism of the 2008 Sudan populace census was that it excluded the South Sudanese in the diaspora (Renzi, 2021, p. 303). Additionally, the poor weather, as well as communication conditions, had prevented some individuals from being surveyed. Lastly, the Sudanese government refused to share raw population information from the census with the South Sudanese government. A 2008 census revealed that the populace of South Sudan was 8,260,490 (Renzi, 2021, p. 303). Nevertheless, the figure is greatly disputed due to the census being done by Sudanese authorities at the time. It is believed that the figures were manipulated as a result of political conflicts.
The rate of growth in South Sudan has significantly slowed post the Darfur conflict. It is anticipated that the situation will continue the same (Renzi, 2021, p. 303). Nevertheless, the growth will still be adequate to see the population double within the next thirty years (Renzi, 2021, p. 303). When the population is low, it means that a company or business products in an area will have fewer consumers. In the case of South Sudan, the populace is lower than in most countries, and the growth rate is seen as slow (Renzi, 2021, p. 303). However, the doubling predicted soon offers an opportunity for a strong market for the Kit Kat product.
The Development of ICT in South Sudan
Although the COVID-19 pandemic presented obstacles to ICT in South Sudan, the development still continues. In previous years, the only way to access internet services was through expensive satellite-based or mobile phone providers (de Sousa and Castañeda-Ayarza, 2022, p. 689). Nevertheless, the nation has been working since 2018 to reduce the cost of communication by extending its fiber-optics infrastructure. Being land-locked, the fastest way for South Sudan to achieve that was to negotiate strategies to tap into the fiber-optic networks of Sudan and Uganda. Since it started, the project has had immense success, which is an opportunity for Nestle to explore. Currently, the majority of companies focus on e-commerce, especially after the COVID-19 pandemic (de Sousa and Castañeda-Ayarza, 2022, p. 696). Improvement of ICT in the country offers an opportunity for the company to create online sales.
South Sudan has access to the water in River Nile. Water is regarded as an essential resource for companies in the food industry. Generally, it can be used in most of the food preparation as well as processing operations (Singh et al., 2021, p. 65). It has various uses in food production, sanitation, manufacturing, and cleaning. Additionally, it is utilized for a range of other activities such as growing, washing, hygienic programs, and fluming. The river offers an opportunity for the business as it is in the food industry.
Consumer Protection Laws Which Serve as a Threat
In most nations, various state and federal laws exist to protect customers from possible exploitation by businesses. In the technology age, legislation has become even stricter to guarantee consumers’ privacy (de Sousa and Castañeda-Ayarza, 2022, p. 698). In South Sudan, there are laws that ensure individuals get a refund when they prove the product given does not qualify for the advertised quality. This can act as a threat to the company which prides itself in offering quality products and thus, a positive image.
Companies in South Sudan have reported that a section of consumers misuse the law by falsely accusing them of producing low-quality products. Apart from losing money, businesses have had to deal with an issue such as bad reputation, which results in losing customers. Nestle can overcome this threat by involving consumers in product evaluation. This will build trust among the people in South Sudan that the product is great for consumption, which will help to protect the image of the brand. Ultimately, it will as well save them from losing customer base to its competitors in South Sudan, including Global Food Warehouse, Banda Food Group, and AMMADI Company Limited.
Modes of Market Entry
When a business grows successfully within domestic borders, it attempts to expand into other territories. The same has would be beneficial to enter the South Sudanese market (Schellenberg, Harker, and Jafari, 2018, p. 601). Some modes of entry into international business the company can choose from including direct exporting, licensing, and joint ventures. Each strategy is different regarding costs, level of ease of execution, risk, and rewards involved.
Direct exporting is a strategy that involves a company directly exporting products and goods to another international market. For some businesses, it offers the fastest way of entering a different market. It can as well be regarded as direct sales since Nestle as the product owner, can go to the targeted place with its own sales force and try to entice the consumers. In the event one foresees a potential demand for a product in a foreign market, one can opt to supply the goods to an importer rather than establish a retail presence. Then they can promote the product directly or indirectly using their sales representative (Schellenberg, Harker, and Jafari, 2018, p. 603). Despite helping to protect the goodwill, patent, and trademark, this strategy has its disadvantages. For instance, offline products will result in high costs for the company since the business is responsible for every operation from the start. Additionally, whereas online products might appear as the quickest expansion approach, there is a great amount of lead time that is dedicated to market research, scoping as well as employing representatives.
Licensing and Franchising
For businesses that desire to establish a retail presence in an international market with fewer risks, the licensing and franchising strategy enables another company or person to assume the danger in place of the original company. In this strategy, a foreign-based business will pay royalty or commission to utilize the brand name, manufacturing process, trademarks, and products. Whereas the licensee assumes the dangers and bears every loss, it shares a proportion of the revenue and profits with the company (Schellenberg, Harker, and Jafari, 2018, p. 606). In most instances, the established company trying to enter the other market has already developed a loyal audience with the people in the other place. This strategy has various advantages, including a low cost of entry into a foreign company. The disadvantage of using this mode of entry is that a licensee may start their personal business for a similar product under a different brand name. In order to protect itself from such a threat, Nestle can apply for utility patent in South Sudan to safeguard its process of making the Kit Kat product.
A joint venture is among the preferred modes of entry into an international market for brands that can share their brand, knowledge as well as expertise. Businesses desiring to expand into foreign markets can create joint ventures with local companies in the new location where both joint venture partners share risks and rewards associated with the business. Business entities share the costs, investments, profits, and losses at the predetermined proportion (Schellenberg, Harker, and Jafari, 2018, p. 614). This mode of market entry fits in nations where the government does not allow a hundred percent foreign ownership in particular industries. For example, international organizations cannot have a one hundred percent stake in broadcast content services, multi-brand retailing print media, and power exchange sectors and need to choose joint ventures to enter the Indian market.
One of the advantages associated with a joint venture is that both parties involved in the business can leverage their expertise to grow as well as expand within a selected market. Another is that the political risks involved in the joint venture are lower as a result of the presence of the local partner having insights into the local market and its business surroundings. The third benefit is that it allows the transfer of intellectual properties and assets, technology, and knowledge of the foreign market between the partnering companies (Schellenberg, Harker, and Jafari, 2018, p. 612). A challenge that usually discourages companies from entering foreign markets using this mode is that the difference in the organizational culture of the two partners can result in a conflict that might take an extended period to resolve. In terms of recommending marker entry mode, even though joint venture offers some benefits, as mentioned earlier, I would recommend licensing and franchising since Kit Kat is already a big brand known worldwide. It would have been difficult to find another company in South Sudan with a similar level of success in the food industry.
Market Segmentation and Targeting
The demographics in the proposed market are suitable for Kit Kat, one of Nestlé’s products. Out of the 10,913,164 projected number of people in South Sudan in 2022, it is estimated that more than half of the citizens are eighteen years or below (Camilleri, 2018, p. 70). The largest segments of Kit Kat purchasers are consumers between the ages of 35 and 54 years who are parents of children below the age of eighteen years old (Camilleri, 2018, p. 70). Due to that, it is financially beneficial to place the segment as the targeted top buyer. This creates a great potential base of consumers who have grown up eating Kit Kat. The next market segmentations aged between 12 and 17 as well as 18 and 24 are derived from the results of quantitative research done on the South Sudanese people (Camilleri, 2018, p. 71). The investigators revealed that the product has high familiarity with teenagers and young adults in various places worldwide.
Based on a psychographic variable such as lifestyle choice, South Sudan offers the best market. Kit Kat primarily on individuals who are used to working for extended periods and search for foodstuffs that do not need preparing for consumption. Such people can be found in the South Sudanese government offices where much work is given to workers as the country intends to grow and reach development levels of others. Additionally, the youth in the country have been seen to try to adopt the lifestyle of those in the Western world. Consuming a product such as Kit Kat is one of the ways they fulfill their desire.
The major reason for the immense love from consumers in the above-mentioned segments is due to their funny television commercials and online marketing strategy. Moreover, it is believed that teenagers and tertiary students are increasingly independent in deciding which items to purchase. As a result, the age 12 to 17 and 18 to 24 segments are placed in the second and third categories (Camilleri, 2018, p. 71). Based on general perception, Kit Kat is not regarded as a premium confectionery brand. For instance, young professionals between the age of 25 and 34, as their earnings increase, prefer to try various chocolates and buy premium brands (Camilleri, 2018, p. 71). Therefore, there is much more tendency for them to attempt confectionaries or chocolates with more sophisticated brand traits such as Royce or Godiva. Therefore it would be proper to have another segment in a different age group.
Porter’s Generic Strategy
Porter recognized three generic strategies that companies can utilize to clarify business behavior as well as drive the behavior. The strategies include cost leadership, differentiation, and focus (Islami, Mustafa, and Topuzovska Latkovikj, 2020, p. 3. The aim of this approach is to aid a business in gaining competitive edge over others (Islami, Mustafa, and Topuzovska Latkovikj, 2020, p. 3). In cost leadership, a company targets to become a low-cost producer in its industry. The sources of cost advantage vary and depend on the industry’s structure. They comprise economies of scale, preferential access to raw materials, and proprietary technology (Islami, Mustafa, and Topuzovska Latkovikj, 2020, p. 4). An advantage of this approach is that a cost leader is able to withstand price wars better than others as they possess the ability to reduce their costs. A disadvantage of the strategy is that it can be risky as the cost leader must continuously innovate novel ways of lowering costs.
In a differentiation approach, a business seeks to be peculiar in its industry along some dimensions widely valued by purchasers. It chooses one or more attributes that most buyers perceive as essential and uniquely places itself to meet those needs. Its reward is a premium price for its products or services (Islami, Mustafa, and Topuzovska Latkovikj, 2020, p. 4). An advantage of this strategy is that it enables a firm to compete in the market without the need to lower the prices. A disadvantage of the approach is that it involves the challenge of altering the consumer perception. The majority of them view the product as equal to alternative items offered in the market at a reduced price.
The third strategy is focus, which is divided into cost focus and differentiation focus. On the one hand, cost focus means minimizing costs in a focused marketplace while on the other hand, differentiation focus is an orientation toward differentiation from other products within a focused market. An advantage of this is that whereas many competitors attempt to sell as many products to as many consumers as possible, the approach helps a firm to select a specific segment. It gains an edge by providing high-quality or low-cost to the segment, which boosts customer loyalty (Islami, Mustafa, and Topuzovska Latkovikj, 2020, p. 6). A disadvantage of this strategy is that it may restrict the initial demand of an item. Working with a particular niche demographic can offer benefits while it can as well produce no results at all.
For Nestle to enter the South Sudanese market and sell Kit Kat competitively, it is essential to adopt the cost leadership strategy. This approach is where a company focuses on cost reduction to deliver a product or service to a consumer, thus guaranteeing that it is more profitable and can add shareholder value. There are various factors to consider when choosing a cost leadership strategy. For instance, it is important to check what effect cost reduction will have on the employees and customers (Islami, Mustafa, and Topuzovska Latkovikj, 2020, p. 5). The firm should identify whether they can maintain that approach as they scale, the way reinvestment of additional business profits will be done, and how to produce the lowest cost delivery against the competition. When performed well, a cost leadership strategy can result in various alternatives for Nestle as it plans to enter the South Sudanese market through Kit Kat. The company can gain a competitive advantage over others in the food industry in that market by increasing profit margins and maintaining current costs.
The paper has explained how and why it is beneficial for Nestle to enter the South Sudan market through Kit Kat. Despite being in 186 nations globally, the firm does not have any offices in South Sudan. Understandably, the country is young, as it gained sovereignty in 2011 and has had political issues until 2020 when a peace treaty was signed between two key leaders. Some of the brands or products under Nestle include Kit Kat, Nescafe, Vittel, Maggi, Smarties, and Nesquik. Before entering a market, it is essential that a company examines the macro-environmental factors in the nation. The information provided shows that there are opportunities that the company can utilize to its advantage. For example, the population of South Sudan consists majorly of the young, as most people are under the age of 18 years old. This aligns with Kit Kat’s largest segments of purchasers, who are between the ages of 35 and 54 years and are parents of children below the age of eighteen years old. It is essential that Nestle considers the proposal of entering the South Sudanese market using licensing and franchising.
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