Frank Davis Comes Madagascar

General evaluations about the case

Frank Davis works for a U.S food processing company Summit Foods, and he visits Madagascar because the company is interested in the local spices market and wants to evaluate if there are good opportunities to enter this market. As we know the cost to enter a new market depends on the company marketing strength, on the ability to access to low cost product and effective production, the experience of the company, the effectiveness of the company infrastructure in terms of organization, technological efforts likely to be successful as measured by the strength of the development organization and the availability of adequate operating capital.

Once in Madagascar the issues with which he must deal are numerous, beginning from the traffic, weather, energy, infrastructure, etc.

But when we speak for a foreign market the most important issues are: Entry barriers, the political and economical stabilization, inflation, currency, foreign competition, legislation, the different culture, and the religion.

The best method to do the market analysis is the market screening, which has five stages and includes all what I mentioned before. As he was informed the 80% of spices grown in Madagascar were exported to Europe, which means that only 20% of the spices were exported to the other continents including here the US. Another important point on the case is the Free Trade Zone, which is currently the major focus of direct foreign investment in Madagascar.

He has to take in consideration some difficulties as: the foreigners are not legally eligible to hold real properties, the bureaucracy from one ministry to another and the bank system.

Frank during his stay in Madagascar meets also a local businessman, but from their conversation I understood, that there is no hope for collaboration, because the Malagasy businessman was too short and too formal in his answers, and had no curiosity to learn more about Summit Foods. Of course in this case we have to do with a foreign culture and as it is mentioned in Malagasy their business is a family affair and Mr. Rakotomanana had to discuss with his wife, but still he could ask a few things about Summit Foods just to have an idea. Having an idea about Summit foods would help him explain better to his wife. During his stay he occurred a lot of difficulties, but he saw this as a challenge and envisioned himself as an investment pioneer in rugged territory, but being a pioneer in a foreign non so economically stable country can be a risk if he enter to early the market, because this will give advantage to new competitors followers who will took advantage of his weaknesses and offer better cost and quality.

At the end Frank must evaluate all the situations and make a plan and recommendations for his supervisor.

1. What more could Frank and his employer, Summit Foods, have done to prepare

for his visit to Madagascar?

I have a controversial idea about if he is well prepared or not because in the beginning I read 'I came here because my boss is convinced there's a lot happening in this country because he has a distant relative who made a fortune here.'' And this makes me think that he was sent in Madagascar only from an idea that his supervisor had somebody who made a fortune...ok...but do you know how? Do you know when he made this fortune? What political and economical situation was? How competition was? How the inflation was? How years did he worked to make this fortune, the obstacles and other possible questions like these. This was my first idea but then I say that he is in an exploratory mission, he didn't came to close contracts, he just came to scout opportunities for export spices, to find new sources of supply and to learn about this new investment his company wants to do. So, he started from a ghost idea, but as we see Frank had knowledge about the political situation in Madagascar, he knows about the religions, the ethnic origin, and the work force. He is prepared in a general aspect about this foreign environment he will stay for one month, and I think that one of the most important things he should be informed is the barriers to entry in the spice industry (which in Madagascar is the most profitable industry) and of course as I mentioned before, who are the biggest competitors and do a SWOT analysis on each of them, but as I read in the case the data available for the economy in Madagascar were inaccurate, outdated and incomplete and here are no comprehensive statistics available on foreign investment flows.

2. How useful has Jean-Paul's advice been? Should Frank rely on the accuracy of all

the information provided by Jean-Paul?

I think than Jean-Paul is helping Frank very much. The first help was about the Zone Franche a free trade zone. Speaking about the government approvals and the problems that Jean-Paul had, can help Frank to save time. Jean-Paul told him also that he can not buy land in Madagascar because is considered sacred, so this also saved time to Frank because he will not lose days on find a land and prepare the documents to buy it. Another help is that he suggested him to find a Malagasy partner, so the things would be easier. Frank also didn't know about the problems with the bank's loan. I think that Frank should valuate all the advices that Jean-Paul is giving him, because first of all Frank is not a competitor to him, and second some of the information Jean-Paul gave are revealing true.

3. What different entry modes could Frank use to operate in Madagascar? What are

the strengths and weaknesses of each?

a) Direct/ Indirect Exporting

To do this Frank needs to choose: Manufacturers agents, distributors, retailers and trading companies. He must find agents and distributors, with prior experience in distributing products. Local agents have priority since they can easily communicate in Malagasy and French. He also must find the safer and cheaper way to enter the market. The products can enter Madagascar via air or sea. In the transportation he must also calculate the bad infrastructure. The advantages are that exporting minimizes risk and investment and the possibility to uses local facilities. The disadvantages are transport costs, trade barriers and tariffs add costs, and from the case we see that the data available are not updated so no security in what you are entering, and since in Madagascar the companies are a family affair