Lewis Globalworks Co. Inc. Production Facility Proposal

Objective:
Our goal is to open a production facility outside of the United States to produce a variety of consumer products, in Tanzania, Uganda, and Kenya.
We plan to: * Pointedly expand into the Tanzanian, Ugandan and Kenyan markets to improve profit margins and increase local market share. * Construct a factory in a high potential region * Expand global reach and decrease costs of production in a new facility in these markets.
Introduction:
Lewis Globalworks Co. Inc. is a producer of a variety of consumer products. Such products include textiles, computers, and auto parts. The company has successfully operated in the United States for the past ten years. With the business boom that is occurring domestically and the desire to improve overall profit margins, the company is planning to build a production facility somewhere outside the U.S. in an attempt to produce at a lower cost. This plan will lay out our goals and tasks to make this potential transition successful and create a profitable outfit. In this write up five major areas of concern will be addressed. These areas are Economic, Cultural, Political, Technological and Legal. All five areas will have significant impact on a decision to build a facility in one of three areas. Our goal is to provide you with an overview of the current environment related to the five areas of concern, in the countries of Tanzania, Uganda, and Kenya. All three countries are located on the eastern coast of Africa and exhibit similar characteristics, with slight variation. We will begin with the Economic aspect in each respective country that may affect the placement of a facility.
Economy
Tanzania
The economy in Tanzania largely relies on agriculture. “It accounts for more than one-quarter of GDP, provides 85% of exports, and employs about 80% of the work force.”(cia.gov)It is one of the world's poorest economies in terms of per capita income, but does have large overall growth rates. These growth rates can be attributed to the fact that they experience high tourism and gold production. An interesting fact about Tanzania is that all land in Tanzania is owned by the government. If a facility was chosen for this region we could acquire up a 99 year lease from the government. Any proposed reforms to land ownership, especially foreign land ownership have remained unfavorable. This factor could be either a positive or a negative, depending on governmental policy, rates and taxes.There is very high fraud risk which keeps interest rates reasonably high. Since 2013, industrial production has grown at close to 7.5%. The labor force in this country is made up of a majority of agricultural workers. Building a facility in this areas will provide diversification for jobs and will allow the company to pay a lower average wage then in the United States. In 2013 the exchange rate is for every $1 US Dollar in 1609.2 Tanzanian Schillings. This will provide a favorable advantage in investing in such a region because the U.S. Dollar is so strong.(cia.gov).
Kenya
The Kenyan economy is also largely dependent on tourism, similarly to Tanzania. In Kenya agriculture is still prevalent making up 75% of the work force in comparison with Tanzania and 25% in industry and services, although its GDP is far better balanced. Only about 30% of GDP is agriculture then industry at almost 18% and a fair amount of almost 54% is made up of services. Corruption and a reliance on low priced primary goods have troubled Kenya’s economy. Among these troubles, a low investment on infrastructure has challenged Kenya to stay in the tenured spot of Eastern Africa’s largest economy. A facility in this area could help boost unemployment which currently sits at 40%. In terms of Kenya’s economic growth they are largely dependent on International financial assistance. They are also experiencing large budget deficits. In recent times terrorism has also become a large threat to their very significant tourism industry. They do have some light in the future with their plans to construct an inter-country transport corridor with an oil pipeline. Out of the three countries Kenya has the largest economy.
Uganda
The Uganda economy is the smallest of the three economies, with a GDP around $16 Billon. About a third of the population is living on just $1 a day. Foreign aid is also about a third of the Ugandan budget. In the past 10 years their GDP has risen on average more the 6%. Foreign investment has been a bright spot for this economy. From 2007 to 2008 foreign investment doubled. Of the major investments, manufacturing was one of the largest growth areas. It seems that Uganda is growing and attractive place to invest. Uganda's economic growth can be contributed to strong macroeconomic management. They have been able keep inflation in the mid-single digits for majority of the last decade. High fuel prices rose inflation in 2009 but calmed back to the low-single digits again in 2010.The consistency of the market may bode well for our company, and provide stable growth of a facility.( http://kampala.usembassy.gov/) The next area of concern is cultural.
Cultural
Tanzania
Tanzania is extremely diverse, with over 100 languages spoken. To be successful in Business in Tanzania, networking is extremely important in order to succeed in business in Tanzania. It is also important to take the initiative to join an industrial association or trade organization to network with local businesses. These aspects are so imperative because a decent amount of time is spent on the personal relationship. Valued high in this country is friendship and mutual trust is necessary for business transactions to run smoothly. For Americans patience in business is a necessary attribute that would likely take some time to get used to. On the whole they are a conservative society. They often see change as a threat to society, so generally their readiness for change is low. Unlike the structured nature of U.S. business, time and deadlines are fluid. Taking the time to build a relationship always will take precedence over timelines. This is an area that may need to be addressed, since this is a decision to place a production facility which is largely dependent on deadlines. Business is hierarchal and often time’s decisions are left for the CEO. The key to success in Tanzanian culture overall is patience.
Kenya
Similar to Tanzania, Kenya is extremely hierarchal and a large focus is put on relationship. It can often be difficult to determine the line between business and personal relationships. They typically do business with only those they know, so it is not uncommon that many friends are their business associates. They work in very distinct roles and they feel that by maintaining that role that it helps keep order. It is believed that a superior is in their position because they have greater knowledge. Kenyans feel that it is not necessary to collaborate and managers rarely ask for an opinion of a lower ranking individual. Working in a team is a fairly new concept for them, and employees usually work on a strict set of rules and regulations. Due to the western influence of business practices Lewis Globalworks Co.,Inc. would need to spend time additional time on team building and the practice of treating co-workers with mutual respect. The readiness to follow strict rules and regulations in this population may benefit the company because it is a production facility and products need to be made properly and consistently. There is potential benefit to the company due to the culture of Kenya in that of the population of almost 41 million, a large number of are well-educated English-speaking, and multi-lingual individuals. They also exhibit a strong entrepreneurial tradition and boast a young population with 70% of the people under 35. (export.gov)Kenya does experience 40%. unemployment as mentioned earlier, so companies like ours are more than welcome to create jobs. A production facility would boost the local community and also look good in terms of our corporate social responsibility. Uganda Unlike the other two countries Uganda is far less hierarchal. They are not new to teamwork and business decisions are often made by a group. When discussing business they like to do so extensively and before making a decision they may seek external advice. Uganda is similar to Tanzania and Kenya in that they want to get to know the people they deal with. The majority of their meetings begin with conversations about families and their backgrounds. This is not so dissimilar to the United States besides the fact that the in the U.S. introductory conversation still stays fairly impersonal and is really just surface level information. When doing presentations Ugandans are typically conservative and they speak very formally. In the U.S. what we call the “small talk” and the introductory conversations in Uganda would precede any formal talks, which is in fairly strict accordance with cultural protocol in Uganda. In terms of negotiations, people and government respond well when it is done in an equal manner. If we demonstrate flexibility and an acceptable level of commitment then they will most certainly reciprocate. Personal contact with the potential business partners I extremely important. The business relationship must be built over time much like the other two countries. The third area of concern is the political aspect. Political Tanzania Before 1992 Tanzania was a socialist country led by President Julius Kambarage Nyerere which was considered a one party state. In the beginning of 1992 the government decided to adopt a multiparty democracy similar to that of Uganda that allowed the establishment of political parties. The first elected leader was Chama Cha Mapinduzi. As the 2000’s approached Tanzania experienced some political violence due to elections where 23 lives were taken. The three branches of government are exactly the same as in the U.S. Executive, Judiciary and Legislative. Government should not stand in the way of business, as they support foreign investment. Kenya In 1967 Kenya won its independence form the British. They currently operate in a multi-party political system with a parliament. Elections have been held every 5 years since declared its independence that being Presidential, Parliament and Local. This model keeps politics more open and fair and highly competitive. Government laws and regulations could be a hindrance in Kenya. Serious barriers may be in place that could potential make it painful to manufacture here. Only until recently have they begun to reform. Since 2008 they are ranked in the top ten reformers by the World Bank.( nyulawglobal.org) Uganda Uganda is a democratic republic that has a multi-party parliamentary system. The party that is currently in power is called the National Resistance Movement or (NRM). They have been in power since 1986. H.E. Mr. Y K has served as president since this time. The next election will take place in 2016. The current President has created a rather stable policy and is considered to be pro-business. Over the years he has made it very attractive to foreign investment and prides himself on promoting both regional and international trade. It is fairly easy to say that at least up until 2016 government should not be a road block in any way when building a production facility. Government shows strong commitment to the private sector. The fourth area of concern is technology. Technology Tanzania, Kenya, and Uganda In each respective country they are fairly similar in terms on Technology. A lack of infrastructure severely hinders these countries growth. Infrastructure is steadily growing but they all lag behind when it comes to connectivity to technology. The actual cost of technology is one of the main factors that contribute to slow growth in these areas. On top of the high cost, a low skill base only adds to the problem. In Africa as a whole, only 16% of people are using the internet. The fact that Africa is such large continent, it makes it very difficult to offer broadband in all areas. It is very limited and usually is available only in urban areas. Kenya and Tanzania specifically are of the few fastest growing technology countries in Africa, but much work is still left to be done. These countries are critical for innovation in Africa. If a facility is put in one of these countries serious consideration is going to need to be put into placing it into an urban area with existing telecommunication and broadband infrastructure. The last area for concern is the legal aspect. Legal Tanzania Corruption is a large part of Tanzanian laws and regulations. According to a study by the World Bank among the major or very severe constraints on business operations and growth” were tax rates, tax administrations, finance and customs administration. (wbginvestmentclimate.org) Regulatory uncertainty will certainly be a major concern of placing a facility here. Reform is steadily increasing and government acknowledges that it is high on their agenda. Government supports the need for broad regulatory improvements and intends to implement practices that will provide the necessary analysis. Kenya A poor legal and regulatory system is one the largest problems that that affects growth in Kenya. Businesses feel that Kenya’s unfriendly legal and regulatory environment was the most pressing challenge they faced in conducting business in Kenya. Issues typically include taxation, permits and fines. Unfavorable regulations could potentially be a problem that could have impact in revenue. Uganda Broad Legal and Regulation barriers occur in Uganda, very similar to the other two nations. Regulations in Uganda tend to be inconsistently and inefficiently applied. A complex legal and regulatory system will potentially create risk for our facility. Uganda also experiences overlapping jurisdiction, poor coordination among government entities and a low quality of information which only adds to the complexity. Conclusion All three of these countries present their fair share of challenges for a potential placement of a production facility. The five areas of concern Economic, Cultural, Political, Technological and Legal outlined in this report will have significant impact on the success of an impending facility. Each of these three East African countries exhibits many of the same characteristics with slight variations as to the barriers that will be run into. On the whole I feel that a facility in one of these areas could prove to be profitable expansion once established.