Institute for Affordable Transportation Plan for Market Entry in El Salvador March 28, 2001

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Institute for Affordable TransportationPlan for
Market Entry in El SalvadorMarch 28, 2001
IAT

• Wharton Team
• Isa Bauerlein
• Susan Ciccarone
• Tuval Hadas
• Christopher McKee
• Curt Peters
• Firdaus Pohowalla

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Project Background
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The IAT is a not-for-profit company dedicated to
introducing a simple motor vehicle in
underdeveloped countries
THE INSTITUTE FOR AFFORDABLE TRANSPORTATION

• Focus on developing a Basic Utility Vehicle (BUV)
• build and grow micro-businesses in developing
  nations
• Simple business model for local production and
  use
• Utilize academia as key enabling partners
• e.g. engineering, marketing, logistics, etc.
• Encourage collaboration and free exchange of
  ideas
• Based in Indianapolis, IN
• Founded by Will Austin entrepreneur and idealist
• Funded by corporations, foundations, governments,
  and individuals

• Mission
• Promote trade and reduce poverty by encouraging
  the development of an ultra low-cost utility
  vehicle that provides mobility, freedom, and
  economic hope to people in rural areas of
  developing countries

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The FAP project will help plan market entry into
a country selected for its favorable
characteristics

• Project objective is to identify
• Where to Enter?
• How to Enter?
• Project Plan
• Country Selection (Where to Enter)
• Round 1 High Level Quantitative Selection to
  reduce country pool
• Round 2 Qualitative Analysis of reduced country
  pool
• Final Selection
• Marketing Plan (How to Enter)
• Situation Analysis (4Cs)
• Marketing Plan (4Ps)

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Country Selection
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After quantitative analysis across a large group
of Latin American countries, 3 countries were
targeted for further study

• This analysis utilized a selection model
  previously developed for IAT
• Developed by an MBA project team at Ohio State
  University
• Sensitivity analysis on the criteria weightings
  found that the top prospects did not vary across
  scenarios

Evaluative Criteria
Model Results
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The three highest rated countries were then
compared across more qualitative attributes
Bolivia
El Salvador
Guatemala
Bolivia
El Salvador
Guatemala
stable
stable
stable
medium
high
low
Government Stability
Auto Penetration
high
low
medium
Many roads,few paved
Some roads,some paved
Few roads,many paved
Currency Risk
Road Development
low
high
medium
34sparse
54 dense
61 dense
Affordability (wages)
Rural Population
high
medium
low
low
medium
high
BUV Need (poverty)
Agriculture Small Business
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The most favorable country for entry is..
EL SALVADOR
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Situation Analysis
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Company analysis highlights the difficulty in
introducing a new concept via a not-for-profit
organization

• Product Uncertainty
• Production prototype expected 2001/2002
• BUV is a new concept with little market testing
• Financial Uncertainty
• On-going funding issues typical to
  not-for-profits
• Lack of revenue stream may hinder fundraising
• Market Experience
• Management experience to date with auto
  components in Latin America
• Need for deep local expertise and points of
  contact

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Consumer analysis reveals a large portion of the
population with a reasonable amount of disposable
income
Target Segments
Purchasing Power

• Population of 5.9 million(54 rural)

• El Salvador Average
• GDP / Capita of 2150
• 85 disposable income
• Target Segment Average
• Adjust for share of wealth
• Disposable Income per capita around 1500 / year
• How much is available for BUV purchase?

Portion of Population
Share of Wealth
Top 20
54
Mid 40
34
Lower 40
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• Target the middle segment in rural areas
• Estimated market of 1.0-1.5 million people

• Close proximity to other promising BUV markets
  (e.g. Guatemala, Honduras)

Geographic Expansion
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Competitor analysis exhibits the current
dependence on less sophisticated means of
transport
Level of Penetration
Method of Competition
People Power
High
Domesticated/Farming Animals
Simple Motor Vehicles
Public Transport
Cars
Low
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Collaborators are critical for promoting
awareness, distributing vehicles, and providing
financial assistance to consumers
Areas For Collaboration
Financing
Assembly Distribution
Marketing
Potential Collaborators
Official Ministries Local NGOs
?
?
Local Trade Associations Chambers of Commerce
?
?
?
International Organizations Microfinanciers
?
?
?
Industry Producers
?
?
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Marketing Plan
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Product The BUV is a standard product that
utilizes a collection of complementary products

• Standard product without variation or
  customization
• General Transport Vehicle
• Significant Payload Capacity
• Power-Take-Off for Operation of Other Devices
• Rugged and Durable Construction
• Complementary Products
• Fuel and Lubricants
• Tools for Maintenance and Repair
• Tires, Filters, and Spare Parts
• Hitches, Wagons, and Other Auxiliary Devices

Widespread availability of these complementary
products is critical for BUV success
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Place IAT faces difficult decisions regarding
centralization vs. decentralization of its
operations
Structural Options
Port Kitting
Centralized
Intermediate Kitting
Mobile Kitting
Decentralized
Success under any of these options will require
partners who provide local product exposure and
local points of sale
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Price The extent of customer ability to finance
BUV purchases is uncertain
Consumers Available Income
Additional Financing
Product Cost

• Direct to customers via micro-credit groups
• Willing to finance from 50 - 1,000
• Direct to IAT via international lending
  organizations

• Disposable income 1,500/capita(slightly over 6
  per day)
• Spend 400-750 of income on BUV

IAT must work conjointly with micro-financing
groups to ensure that consumers will be able to
afford a BUV
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Promotion IATs promotional campaign must build
up the BUV market from scratch
BUV Awareness
BUV Benefits
BUV Price / Value
BUV Use / Care
What to Promote?

• Word-of-mouth
• Radio and other mass media
• Local NGOs
• Local churches

• Word-of-mouth
• Sales agents
• Local test users

• Sales agent for detailed price
• Mass media for relative price and financing
  availability

• Discount for aiding assembly
• Mailings to remind of maintenance
• Mass media

How to Promote?
Promotional success will depend on
word-of-mouth and local presence
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Conclusions and Next Steps

• Plan for Entering El Salvador
• Country selection analysis shows the need for BUV
  and its potential success
• Situation analysis validates existence of viable
  target segment, but product and financial
  uncertainties remain
• Market analysis shows that success highly depends
  on non-BUV factors
• Complementary products
• Partners for local presence
• Financing assistance

• Next Steps
• Validate marketing plan findings with research in
  El Salvador
• BUV prototype field test
• Local customer focus groups
• Complementary product availability
• Examine viable financing and fund raising options
• Identify key local partners across the supply
  chain