Barilla Group Market Entry Strategy for Ivory Coast

Company Profile and Background

Barilla Group is an Italian food company headquartered in the city of Parma, with operations across various nations in Europe. The company was established in 1877, initially as a bakery shop and family business. To this day, the company remains under the control of the Barilla family. Barilla has established itself as a leading multinational pasta maker, producing more than 120 different sizes and shapes of pasta. The company holds a market share of approximately 45% in Italy and 25% in the United States. Barilla pasta is retailed in numerous restaurants around the world (Barilla Website, 2016).

Barilla Group has extensively expanded its business operations across Europe and the United States. Given the company's considerable proficiency and expertise in international expansion, it is well positioned to enter the African market. Ivory Coast has been selected as a strong prospect for the Group to introduce its operations and products. The Barilla Group manages a number of brands globally and is recognized as the leading pasta brand in the world as well as the leading sauce brand in Europe. The product under consideration for introduction into Ivory Coast is its well-known pasta range (Barilla Website, 2016).

Market Analysis: Ivory Coast

Côte d'Ivoire, also referred to as Ivory Coast, is one of the fastest-growing economies in the world and one of the most dynamic economies in West Africa. The capital city is Yamoussoukro, while the country's largest city is the port of Abidjan. During the 1960s and 1970s, Ivory Coast was an economic driving force in West Africa, owing largely to the production of cocoa and coffee. Key statistics include an economic growth rate of 7.8% for the 2014 fiscal year, with an inflation rate of 0.4%. The gross domestic product (GDP) per capita stood at $3,100, and foreign direct investment in the same year was 1.19. Ivory Coast has a population of over 23 million people. According to Euromonitor International (2014), the country is considered one of the twenty markets of the future most likely to offer significant prospects for consumer goods companies worldwide.

Risk, Social, Economic, and Political Analysis

In undertaking a risk assessment of Ivory Coast ahead of Barilla's market entry, several factors must be considered. First, there is significant corruption. In the 2015 fiscal year, the nation scored just 32 points out of 100 on the Corruption Perceptions Index, as reported by Transparency International (Trading Economics, 2016). While this represents an all-time high compared to the score of 19 recorded in 2004, it still presents considerable challenges for a foreign company seeking to establish itself. A high prevalence of crime further increases the difficulty of doing business, particularly for foreign firms. Additionally, there is a substantial tax burden placed on foreign companies operating in the country.

Ivory Coast is a socially complex nation. Of its more than 20 million inhabitants, approximately 5 million are immigrants from Burkina Faso and Mali. The country is home to more than 50 distinct local ethnic groups, which are broadly categorized into four major groupings: the Akan, the Krous, the Voltaiques, and the Mande. The most populous city is Abidjan, with approximately 4 million inhabitants, followed by Yamoussoukro, Bouaké, and San Pedro. With regard to religious affiliation, the population in the northern half of the country is predominantly Muslim, comprising just over 38% of the total, while the southern half is largely Christian, representing just over 32%. The remaining approximately 28% practice tribal religions found across the country's territory (Linn, 1977).

Given Ivory Coast's status as one of the most prosperous West African nations, approximately 20% of the population — roughly 3.4 million people — consists of workers from neighboring countries such as Guinea, Burkina Faso, and Liberia. Statistics also indicate that 4% of the population is of non-African origin. It is worth noting that a large proportion of the adult population, especially women, is illiterate, and secondary school enrollment is predominantly male. While the country has more than 60 native ethnic groups, these can be broadly consolidated into seven main groupings based on common historical and cultural characteristics (Linn, 1977).

The economy of Ivory Coast in the 21st century is largely market-oriented and heavily dependent on agriculture, with smallholder cash crop production being particularly prevalent. The agricultural sector accounts for approximately 60% of the labor force. The main cash crops include cocoa, coffee, bananas, sugar cane, pineapple, and cotton. Notably, Côte d'Ivoire is among the largest producers and exporters of palm oil, coffee, and cocoa beans in the world (Ovalle, 2012).

Timber production is of major economic significance. Key timber exports include obeche, mahogany, SIPO, iroko, and makore, with annual production estimated at over 10 million cubic meters. Fishing is another important economic activity, carried out primarily along a coastline stretching over 500 kilometers, yielding an estimated annual catch of more than 55,000 tonnes. Mineral extraction also contributes substantially to the national economy. Oil fields were discovered in 1977, and extraction began three years later; by 2005, production reached approximately 12 million barrels per year. Annual diamond production is estimated at approximately 600,000 metric carats (Ovalle, 2012).

Relative economic stability has returned to Côte d'Ivoire in recent years, driving GDP growth of approximately 9% in 2013 and 8% in 2014. In 2014, GDP per capita was recorded at $1,154 USD — equal to roughly 9% of the world average. According to a World Bank report, Ivory Coast's ease of doing business ranking improved to 147th in 2015, up from 158th the previous year (Raza, 2015). France remains by far the most significant foreign investor, with high volumes of foreign direct investment. The country also benefits from a large and growing labor supply, owing to its young working-age population, migrant workers from neighboring nations, and high rates of urbanization — resulting in an abundance of low- and semi-skilled labor (Raza, 2015).

Ivory Coast concentrates significant executive power in the office of the President. The country is divided into nineteen regions and eighty-one departments. A key concern in this environment is the legacy of political instability. In 1999, the country experienced a coup d'état, and in 2002 a civil war broke out. However, the private sector has since regained confidence in the Ivorian economy. Following presidential elections in October 2015 and the election of Alassane Ouattara, the public signaled a desire to consolidate the nation and move beyond a history marked by violence. The new government's primary goals include engaging all relevant stakeholder groups in substantive dialogue on issues critical to peaceful coexistence, citizenship, youth unemployment, and poverty (The Guardian, 2015).

Ivory Coast has an investment policy designed to increase private sector investment and boost domestic production. Incentives include tax exemptions for major investments and businesses located outside Abidjan and other metropolitan industrial zones. The country is classified as "D" in global rankings for political and economic risk, as assessed by COFACE (2015), which notes that the business environment is complicated by internal political conflicts. However, since the elections, management of the public sector and its institutions has become more transparent. The national good governance and anti-corruption plan — Plan national de bonne gouvernance et de lutte contre la corruption — is expected to undergo further development through the establishment of the Haute autorité pour la bonne gouvernance, the authority for good governance (Adingra, 2014).

Ivory Coast operates stringent regulations governing the employment of migrant workers. The rigidity of the labor market is somewhat offset by the absence of a minimum wage regulation, which makes unskilled labor economical and plentiful. Corruption and uncertain property rights continue to undermine the institutional framework essential for sustained economic growth. With regard to the legal environment, there has been increased efficiency in business regulations: the time and procedures required to incorporate a business have been reduced, and meaningful progress has been made in restructuring the entrepreneurial framework. Nevertheless, the protection of property rights remains weak, and obtaining title deeds outside metropolitan areas is uncommon (Adingra, 2014).

Market Entry Strategies

Given Barilla Group's experience in international marketing and its expertise in the commercial food business, the company is well positioned to accelerate its expansion into this market. There are two basic forms of export engagement. The first is direct exporting, in which a company sells its products directly to buyers in the target market (Chung and Enderwick, 2001). The second is indirect exporting, in which a company sells its goods to intermediaries who then resell them to buyers in the target market. The market entry strategy selected for Barilla Group's entry into Ivory Coast is indirect exporting (Chung and Enderwick, 2001).

With this approach, an intermediary is required to facilitate the process, which means the company will need to consider prospective alliances with local firms. The intermediary selected is an export management company (EMC) — a firm that specializes in exporting specific types of goods to a well-defined customer base in particular countries or regions. Barilla Group will expect the EMC to be primarily market-oriented and to fulfill a range of key duties. First, the EMC will purchase products from Barilla Group and apply a markup to cover its profit (Chung and Enderwick, 2001). Second, the Group will handle all aspects of the export transaction, including identifying markets, scheduling relationships with agents and distributors, managing all negotiations and communications, handling documentation and freight logistics, traveling overseas to meet prospective clients, and establishing appropriate distribution channels (Chung and Enderwick, 2001).

According to Export.gov (2016), although it is not legally required, retaining a local agent or distributor may significantly facilitate the export of Barilla Group products to Ivory Coast. As an exporter, Barilla Group should be aware that several established sectors in the country are already served by one or two major distributors, producers, or agents who supply a substantial share of the market, while numerous smaller agents compete for niche markets. When selecting an agent or distributor, Barilla Group must ensure it has a thorough understanding of the local market (Export.gov, 2016).