AYKAC FURNITURE

UNDERSTANDING BUSINESS EXPANSION AND MODE OF ENTRY

SELECTION
Strategic Decision to Enter New Market for
Furniture Business (Aykac)

Morocco Algeria Tunisia

As a consultant it is important to conduct an economic analysis along with the study of FDI in the above
countries to advise AYKAC furniture strategize the selection and mode of entries in one of the above
countries. The decisive factors include:
1. Ease of Business
2. Government Stability
3. Furniture Industry Share in Country’s Economy.
4. Trained Human Resource and Literacy
5. Infrastructural Opportunities
 Morocco: Foreign Direct Investment
Statistics

According to UNCTAD's World Investment Report 2021, FDI flows to Morocco stood almost unchanged at
USD 1.4 billion in 2020. The stock of FDI reached USD 72 billion in 2020. Morocco's FDI profile is quite
diversified, with a consolidated presence of some large multinationals in manufacturing industries, including
automotive, aerospace and textiles.
Morocco: Pros. & Cons. of Business
Expansion
Advantages of Business Expansion in Morocco:
 A legal framework and assistance measures very favorable to investors
 Relatively low labor cost
 A strategic location, between Europe and sub-Saharan Africa
 Robust infrastructure
 A young and relatively well-trained population
 Political stability encouraged by the popularity of the King, Mohammed VI
Morocco: Pros. & Cons. of Business
Expansion
Disadvantages of Business Expansion in Morocco:
 A relatively small internal market
 A country still highly dependent on agriculture and therefore vulnerable to natural
disasters and the price of hydrocarbons
 Administrative burdens slowing down, among other things, the start of business
activities
 Significant social disparities by region (rural vs. urban) and a high poverty rate
 High unemployment rate and low productivity
 Weak intellectual property rights protection
 A lack of transparency in public procurement
 Algeria: Foreign Direct Investment
Statistics

Algeria has historically attracted decent FDI flows. However, FDI flows were negatively impacted by the social
unrest followed by the COVID-19 pandemic these last years. According to the data published by UNCTAD in
the World Investment Report 2021, FDI in Algeria decreased by 19% to USD 1.1 billion in 2020 (down from
USD 1.3 billion in 2019) with inflows directed primarily to the natural resources sector
 Algeria: Pros. & Cons. of Business
Expansion
Advantages of Business Expansion in Algeria:
 Low cost of energy (gas, fuel and electricity)
 Large liquidity reserve which lowers its vulnerability to commodity prices
 Strong potential in renewable energy and tourism
 Skilled and inexpensive workforce
 Recent laws to encourage foreign investments and various incentives for foreign
investors
 Algeria’s proximity to Europe, its geographic location as an interface between
Europe and Africa and inside the Maghreb
 Algeria: Pros. & Cons. of Business
Expansion
Disadvantages of Business Expansion in Algeria:
 Slow administrative procedures and large and inefficient public sector
 Weak business climate, according to international evaluation agencies
 The dependence of the economy on hydrocarbons, which increases dependence on
imports of transformed goods
 The insufficient development of regional markets, which restrain Algeria's appeal to
foreign investors
 The complexity of legislation, especially tax law
 The difficulty to acquire industrial property
 High level of unemployment among young people
 Degraded regional geopolitical context (Libya, Mali, tensions with Morocco).
 Tunisia: Foreign Direct Investment
Statistics

FDI flows to Tunisia remain below their potential. According to UNCTAD's World Investment Report
2021, FDI inflows to Tunisia fell to USD 652 million from USD 845 million in 2019, a 23% drop,
following the global economic crisis triggered by the Covid-19 pandemic. The manufacturing sector
attracted the most FDI (54%), followed by energy (33%).
 Tunisia: Pros. & Cons. of Business
Expansion
Advantages of Business Expansion in Tunisia:
 The solvency of the country gives it access to international capital markets and allows it to find its place in the world economy
 The growing diversification of the economy (tourism, mining production developed in phosphates and oil sectors, etc.) strengthens its
resistance to economic crises
 Support from the IMF and other international institutions
 The economy can rely on a young, fairly skilled and productive workforce at competitive pay levels
 The country's proximity to the European market and its association agreement with the EU: the capital city Tunis is, on average, two
hours flight from the main European capitals
 The social system is well developed and an ambitious education policy has been launched; it aims to reduce the social cost of adjustment
and strengthen the modernisation of the country
 The political transition has been gradual and relatively peaceful (in comparison with Egypt and Libya, for example), creating a generally
positive business environment
 The country is rich in natural resources, including phosphates and hydrocarbons.
 Tunisia: Pros. & Cons. of Business
Expansion
Disadvantages of Business Expansion in Tunisia:
 Economic reform in Tunisia has not kept pace with political reform since the revolution of 2011
 Issues of corruption and nepotism
 High social and geographical inequalities, which may be exacerbated after the COVID-19 crisis
 Prohibitive customs and tax regimes continue to pose barriers to small and medium-sized enterprises
 Structural imbalances in the public and external accounts, with a significant increase in external debt
 State-owned enterprises still play a large role in Tunisia’s economy; many sectors remain closed to foreign investment
 The informal sector is large (estimated at 40-60% of the economy by the U.S. State Department)
 The high level of youth unemployment, as well as unemployment among those with university degrees (about a third of the unemployed),
are seen as potential risks to social and economic stability
 The country's high public debt and the great dependence on the European economy make the Tunisian economy vulnerable.
 Morocco: Favorable Destination for
AYKAC Furniture Business Expansion
Comparatively, Morocco is a favorable destination for the selection of expanding
Aykac Furniture due to its ease of policies to enter as a new foreign business.
Morocco can also be seen as highly attractive for greenfield projects which means
that it will allow a Turkish business to establish its own on-ground operations with an
added advantage of robust infrastructure facilities.
Morocco: Furniture Industry Statistics
 Revenue in the Furniture segment is projected to reach US$241.70m in 2023.
 Revenue is expected to show an annual growth rate (CAGR 2023-2027) of
12.26%, resulting in a projected market volume of US$383.90m by 2027.
 In the Furniture segment, the number of users is expected to amount to 9.8m users
by 2027.
 User penetration will be 17.1% in 2023 and is expected to hit 24.7% by 2027.
 The average revenue per user (ARPU) is expected to amount to US$37.00.
Morocco: Furniture Industry Statistics
 Revenue in the Furniture segment is projected to reach US$241.70m in 2023.
 Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 12.26%,
resulting in a projected market volume of US$383.90m by 2027.
 In the Furniture segment, the number of users is expected to amount to 9.8m users by 2027.
 User penetration will be 17.1% in 2023 and is expected to hit 24.7% by 2027.
 The average revenue per user (ARPU) is expected to amount to US$37.00.

The above information depicts the boom of furniture industry in Morocco. Furthermore
IKEA, a world renowned furniture giant has entered Morocco which illustrates bright
future and imagery of having niche for furniture products in Morocco.
International Business Mode to Enter
Morocco Market

Greenfield
Aykac Furniture Joint Venture
Venture

 Two pronged business mode will be approached for Aykac Furniture to enter
Moroccan markets. Joint venture with IKEA will follow to a complete Greenfield
Venture after assessing the success of customer acquisition and feedbacks.
Furthermore exporting to furniture SMEs in Moroccan markets will also be
helpful to penetrate and establish a brand for Aykac furniture.
 Size of Business to Enter Morocco
Market:
 Two pronged approach
 Exporting Products following Greenfield Investment in a longer run is most profitable approach for Aykac Furniture.
The reasons are as following:

 Affordable and Literate Labor

 Developed Infrastructure & Facilities
 Strategic Geographic Location of Morocco which will introduce more business expansion opportunities.

However Greenfield Investment decision will be assessed after the analysis of successful Joint Venture with furniture giant already
established in Moroccan market named as IKEA.

Furthermore, as per policy of IKEA , a company can enter into partnership agreement with other local retailers as well,
therefore, Aykac will export the products to local SMEs to establish strong brand identity and customer feedback assessment.