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A new breed of legal support

Tanzania market entry strategies (4)

2019-08-15 13:51:22

By Paul Kibuuka @tzpaulkibuuka

“In the end that was the choice you made, and it doesn't matter how hard it was to make it. It matters that you did.” — Cassandra Clare. The choice of a market entry strategy in Tanzania is cardinal to a foreign company’s fruitful exploitation of various business opportunities that today’s and tomorrow’s Tanzania presents.

From this viewpoint, in this fourth part of our article series, we discuss five ways in which a foreign company can enter the Tanzania—one of the key shipping and logistical hubs in the East African Community regional economic bloc offering a large consumer base, thanks to the country’s population of roughly 55 million people and a growing a middle class.

One of the easiest ways to enter the Tanzanian marketplace is via direct or indirect exporting. The difference between these export modes lies in the way the export transaction between the foreign company and the Tanzanian importer/buyer is managed. A foreign company can directly export to consumers in Tanzania through e-commerce, and this could help maintain close relationships with the consumers.

In addition, a foreign company can take advantage of local knowledge by indirectly exporting through an independent agent or distributor. Exporting, although less risky compared to other entry strategies, is susceptible to trade barriers and tariffs and exchange rate fluctuations.

The government of Tanzania encourages joint ventures between local companies and foreign companies. With this entry method, a foreign company can take advantage of its Tanzanian counterpart’s local knowledge, local contacts, and local reputation. Complimentary assets can benefit the two companies and facilitate the attainment of shared objectives which include, inter alia, sharing of risks/rewards and meeting thresholds and other regulatory requirements, especially in the highly regulated sectors of insurance, financial, mining, telecommunications and tourism.

Franchising, although relatively new in Tanzania, is another way in which a foreign company can enter the Tanzanian marketplace. Under this strategy, a Tanzanian domestic business owner (franchisee) pays fees and royalties for the right to use a foreign company’s (franchiser’s) intellectual property and manufacture or sell its products. In essence, franchising can help a foreign company to gain a foothold in Tanzania with far less time, effort or capital. 

However, with franchising, there is less control over the day-to-day operations which may mean running into disagreements as the franchisee is still an independent business. Moreover, it is not easy to terminate a franchise agreement since cause which amounts to violation of the agreement must be shown.

Mergers and Acquisitions (M&As) bring the same benefits as a joint venture, however, M&As offer foreign companies increased control over the market. The regulatory framework for M&As is contained in the Fair Competition Act, 2003.

A merger entails the consolidation of two companies to form a new business entity in order to enjoy economies of scale and tax reliefs and to strengthen business growth. An acquisition involves a foreign company acquiring a controlling interest in a Tanzanian domestic company. But the acquisition does not dissolve the domestic company, rather it changes its ownership structure.

A foreign firm can also enter the Tanzanian market through a strategic alliance (i.e. a voluntary formal agreement) with a Tanzanian domestic firm. The main objective of a strategic alliance is to pool resources to achieve common objectives while both firms remain independent. In recent years, some foreign law firms have expanded into Tanzania through strategic alliances with local law firms.

Changes in Tanzania’s legal and regulatory environment of business are occurring all the time, and could influence a foreign company’s future investment decisions and performance in the Tanzanian market. This underpins the paramountcy of choosing the most appropriate market entry strategy to take advantage of the vast opportunities in the Tanzanian economy.

Foreign companies need to recognize that while there are various ways in which they can enter the Tanzanian market, no strategy works for all sector and industry segments of the economy. Failing to choose the most appropriate strategy could tantamount to missing Tanzania opportunities and fettering the realization of the benefits of international expansion.

Next Saturday, 10 August 2019, we will come to the fifth and final part of this article series. 

Paul Kibuuka is the managing partner of Isidora & Company Advocates. Email: paul.kibuuka@isidoralaw.co.tz Twitter: @tzpaulkibuuka This article was first published in The Citizen on Saturday, 3 August 2019.

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