Essay Example: Discount Tire for Tire Market in Kenya

Bruce T. Halle founded the first Discount Tire in 1960 in Ann Arbor Michigan when he rented an old building. As the stores only employee, Bruce served as the tire technician, cleaning crew, salesman, and accountant, and the company grew to over 200 stores in 30 years. Bruce's starting inventory only consisted of six tires, but he grew his store by making connections with the community and honoring relationships with customers and employees. Their headquarters are held in Scottsdale, Arizona and they now have 1,000 stores in 34 different states. Discount Tire grew from a single person operation to America's largest independent tire and wheel retailer. The company likes to focus on reasonable prices, great customer service, mutual respect and fairness through the community, and it's satisfaction guarantee. Bruce knew that for his company to excel in the market, he would need to improve the customer experience and that it would greatly improve the brand's value, which made his product very distinct. Their founding principles are: treat people with respect and fairness, care for those in need, always do what is right, work hard, be responsible, and have fun.

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Developing Country: Kenya

Kenya is a developing country in Africa with a population of approximately 48 million people. Kenya is also home to Africa's largest freshwater lake, Lake Victoria. It is also surrounded by protected wildlife reserves and national parks. Their economy is the largest in eastern and central Africa and agriculture is their largest sector. The service industry is a big economic factor, especially tourism. An article I found on industrialization.go.ke stated that there has also been a $55.6 investment in the infrastructure development for Kenya, Uganda and Ethiopia and industry sectors are expected to benefit from the planned infrastructure developments such as oil and gas, mining, agriculture, and retail. It is also stated that Kenya is set to become a hub for intra-regional trade in Africa. It was also said that transport infrastructure has undergone major upgrades over the past 5 years.

Motives for Globalization

A large motive for us to want to reach out to Kenya for globalization is the fact that their infrastructure is improving dramatically and their demand for tires is increasing. Kenya currently has one domestic importer of tires, and they are selling second-hand, worn out tires for a cheap price. It is also such a driven tire market because there is no automobile manufacturing facility in the country. An article I found on aftrica-business.com stated that a they have a vehicle motorization rate of around 28 vehicles per 1,000 people and that Kenya offers a huge potential for new vehicle sales, therefore promising a positive outlook for the country's tire industry. We think their developing roads and infrastructure is going to greatly increase their need for durable, long lasting tires.

Strategic Challenges

A big challenge we face is be that they have such a high poverty rate and they don't have many people in the upper or middle class who are going to be able to afford nice tires. However, we will be basing a lot of our sales coming from businesses who need durable tires for their semis/trucks because they will have the need and the capital to invest in our tires.

Another challenge we are facing is that China already is the lead supplier of tires in Kenya. They however are selling second hand tires. The down side for us is that they can sell their tires at a cheaper rate, and we will be selling ours at a more expensive rate based on the fact of our tires are more durable and reliable and have a longer life. However, I found that they are decreasing Chinese tire penetration (Gateway Marketing).

Analysis of formal and informal institutional environments

Economic

Kenya became an independent country in 1963 when it got its independence from the United Kingdom this means that the country has english aspects in its economic and legal systems. Kenya's economy largely consists of agriculture and service industries which make up roughly 83.2% of its economic output according to the Central intelligence agency (CIA). Much of the infrastructure in kenya is being built by outside countries such as China and most recently countries from the European union which have decided to invest another 56 billion in funding for infrastructure as of November 11th of 2018. These investments from other countries show confidence and an optimistic view for business growth and opportunities which is shown in its "6% economic growth rate over the last decade" (CIA 2018).

Legal

The location on the coast of Africa and the country's movement towards a modernized economy and society is what has made it so appealing to direct investment from more developed nations like China and the European Union and the fact that it has a formal government unlike some of the neighboring countries like somalia makes Kenya a safer bet for investment in the long term in east Africa when compared to other countries in the region. Although Kenya has a more stable government than its neighbors it is still regarded as a corrupt government and is ranked 143 out of 180 with a corruption index of 28 which is better than countries like Somalia and Uganda according to Transparency.org. One other issue regarding stability in the country is terrorist activity along the northeastern border of Kenya and Somalia. This doesn't have much effect on business in the country unless the terrorist cells decide to move south to Nairobi and Mombasa which are where most business takes place.

Political

Most people in Kenya practice Christianity due to their association with the United Kingdom, however Islam is starting to become more popular. There are more than a dozen different ethnic groups which could make advertising and educating people of the investment value of our products more difficult due to the differences in customs or languages. The official languages of Kenya are English and Kiswahili with Kiswahili having multiple different dialects.

Technological

Technological experience in the country is limited due to the lack of infrastructure in the country but cell phone and radio usage is among the highest active participants for technology devices which is different for most developed countries which have a much higher internet usage and a lower conventional media usage like radio and paper so this is something that we must take into account when marketing our products.

Target Market and customer need

Our target market are businesses and upper class citizens in Kenya. The country doesn't have a large enough middle to upper class to just be our target market so selling to businesses and the upper class is the best option because they have a larger capital and budget to spend on our products. As far as businesses are concerned they would see the value in our product because they would see it as an investment because right now they are buying used tires from China which have low quality and a short lifespan because they are already worn down from prior use. Businesses have inherently larger capital than an individual and would therefore be more willing and able to spend on a product they could see as reducing the cost purchasing fewer tires and spending more in the short term to saving in the long term. We see selling to businesses as an advantage because the service and agriculture industry makes up 83.2% of economic industry which does not include outside countries bringing in their own vehicles and equipment to build the infrastructure which is another business we can sell our tires to because the projects will take years to complete which means the companies will more than likely need to have a change of tires and we will be the more reliable option available to them.

As far as selling to the upper class this would be available at the stores we would be supplying to. This would be a more cost effective method because the people we would be selling to would already know the advantages to purchasing our product and therefore would require little more than a radio ad of marketing to explain the benefits of our product. These people would want and need our product because it would reduce the hassle and repetitiveness of getting and buying new tires multiple times per year which they would see as both time saving and cost saving in the long term. As the economy and stability in the country improves we would look into selling to more individuals like those in the middle class but at the moment there are not enough in the middle class to make a business model viable with just selling to individuals.

Current Competitors

As of this moment, the only competitor to selling tires in Kenya is the Chinese-supplied second-hand tires that are of less quality. The strengths of the Chinese tires are that they have been the sole provider of tires in Kenya since 2016 when the only tire manufacturer based in Kenya closed citing a "financial loss of $150,000 USD" the year its largest shareholder decided to close the plant (Forbes 2016). The strengths of the Chinese exported tires are that they are significantly cheaper than the previous competition as well as our own tires. They also have recognition and familiarity with their brand and the community is already purchasing from them. The weakness is that the quality and the reliability of their products is significantly less than our product.

Porter's five forces model: for the tire market in Kenya

Threat of new entry: The cost of entry into the market is less than most other direct investments because the technology barrier is almost nonexistent. The reason for this is that although tires do have some technical differences that make them stand out in a well developed highly educated country, but in the case of Kenya, the benefits would be too costly to explain in the short term and therefore the only benefits worth having are proof that the tires are more durable over time than the competitors which are in this case are China's tires. So the possibility of the number of competitors increasing in the future is likely however by the time others decide to enter the market we plan to have a good customer-supplier relationship that will make it more difficult for others to enter the market effectively.

Supplier power: Because our business of Discount Tire is already partnered with most tire suppliers like Goodyear, Michelin, and Bridgestone, those companies would not be interested in branching out on their own because we are taking most of the risk and they have stability and the rewards of partnering with us so it is unlikely that the major suppliers of tires would attempt to enter the market on their own. The only other supplier threat to us would be if other countries with a high number of used tires decides to start selling slightly less used tires than China's which would be a alternative between the new tires we would offer and the heavily used tires that China offers.