The Lebanese Diaspora consists of more than 16 million ...



Feasibility Analysis

Entrepreneurial Consulting Final Report

Presented by:

Caleb Hansen Elizabeth Aramide Oladeinde Hongyan Pei Mohammed Rustom

11/28/2012

Table of Contents

Executive Summary 3

I. Original Venture 4

1. Venture Description: 4

2. Perceived Opportunity/Need: 4

3. Service Description: 5

4. Target Market: 5

5. Strategy 6

II. Venture Analysis 7

1. Analyzing Venture Attractiveness (using Porter’s 5 Forces) 7

Market Landscape 7

Competition 8

Basis for Competition 8

Target Market (Size and Growth) 9

Figure 1: World Internet Pentration Rate 10

Figure 2: Internet Usage Growth Trend and Forecast (Conservative) 10

Barriers to Entry and Market Structure 11

2. TOWS Analysis 12

Threats 12

Figure 3: Arabuy SWOT Analysis 13

Opportunities and Niches 13

Figure 4: Arabuy TOWS Analysis 14

3. PESTEL Analysis 15

Figure 5: Arabuy Mind Map Analysis 17

III. Findings and Recommendations 17

Figure 5: FAR Analysis 18

Recommendations 18

IV. Conclusions 19

Executive Summary

The Lebanese Diaspora consists of more than 16 million around the world, far more than the internal population of Lebanon itself, which is estimated at 4 million2. The Diaspora, has been effective in supplying remittances to family members within the country that totaled $8.2 billion [1]in 2010 in cash. This accounts for one fifth of the country's economy or about $1,400 per capita every year[2]. Most of these remittances are spent by the typical Lebanese family for goods and necessities. These remittances cost an average of 26$ for small transactions (up to US$200).[3]

In our initial strategy, Arabuy was envisioned as an online commerce company; providing E-retailing services for existing retailers in the Lebanese/ME market. The intended market groups were to be all Lebanese residents that have internet access and the purchasing power. The strategy was to focus on this market group and provide this segment with merchandise categories such as: Imported Goods (Goods not available in Lebanon), Local Goods (For personal use and as gifts), local Specialty Goods (Arts and Crafts). The second group of potential customers were to be the Lebanese Expatriates living abroad that have internet access and the purchasing power; with a focus on merchandise categories such as: Exported Lebanese Goods (Lebanese goods not available abroad), Local Goods (As gifts), and Exported Local Specialty Goods (Arts and Crafts).

After researching each of these areas and assessing overall feasibility, we recommend Arabuy take a slightly different course of action to ensure long term growth and sustainability. First, because the Lebanese Diaspora constitutes a bulk of people with Lebanese ancestry around the world, we recommend the company focuses on the Lebanese Diaspora as its core market segment to increase sales and profitability. Secondly, we recommend Arabuy acts as a “facilitator” to online trade between local Lebanese merchants and the Lebanese Diaspora. Third, we recommend that Arabuy handling and delivery services through 3rd party delivery services. Finally, Arabuy provide customizable business services to provide access and support to online retailing for existing and potential traditional retailers.

2 Original Venture

Venture Description:

The company () was originally envisioned to be an online commerce company that drop-ships products. As such, it will be provide E-retailing services for existing retailers in the Lebanese/ME market. As a company, it will not own products; it only facilities the online service for other retailers (Advertisement, Sales, and Distribution/Delivery).

Arabuy will create and manage its website through which other retailers (small and large) could post their products; a hybrid between eBay and AMAZON. The benefits to retailers are the vast market reach that they will be exposed to by eliminating the proximity barrier and high advertising costs. The benefit to Buyers is price comparison, online discounts and greater/easier access to a variety of local, international, and specialty goods. In addition to these benefits, through economies of scale, Arabuy will be providing marketing advantages to smaller retailers previously unachievable. It will also provide handling and delivery services through 3rd party delivery services.

With all these services, Arabuy would be stream lining the retailing business for both the retailers and the end users. Its customizable services would complete the retailing loop that starts with product posting, marketing, and selling until finally delivered to the end user.

Perceived Opportunity/Need:

Every year over 2 million visitors travel to Lebanon. A big portion of the visitors are Lebanese expatriates working abroad. These figures are expected to grow as more and more Lebanese migrate in search of jobs and stability (estimated at 0.48% annually[4]). These same individuals are the engine of the Lebanese economy. They move billions in remittances back each year.

While abroad, these individuals have very little means for sending support to their loved ones back home. This is even more of an issue when trying to cater to a special occasion or send a gift that is difficult to ship internationally. As such, an online retailer would be the best venue for providing such a service.

Additionally, local customers are constrained by their geographical proximity to the traditional vendors. Comparison buying is time consuming and not always possible. Furthermore, pricing isn’t always transparent. Arabuy will provide the local buyer with an opportunity that allows for all these benefits in a concise and intuitive platform.

Service Description:

will be a ME-based multinational electronic Business to Consumer Commerce Company. The Company would be headquartered in the Middle East, most likely in Beirut, Lebanon. The company’s business structure will be very similar to but tailored to meet the unique needs of the Middle East market culture.

The company website will offer the following services:

• Business Services:

Market Exposure through

o Market Place

o “Sale On”

o Advertisement (Top Rated Sellers/Products)

• Third-Party sellers

o "Ease of Use"

o “Product Posting”

• Online Selling Management Applications

o Online Store tracking

o Queries

o Trends

o Data Analysis

• 3rd Party Delivery Services

a. Consumer Services:

• Product Variety

o “Just Ask”

o Market Place

• Competitive Market Comparison

o Recommendations

o Reviews (Products and Sellers)

o Competitive Pricing

• "Ease of Use"

• Registries

• Delivery Services

• Security

Target Market:

Based on our business model, we plan to target two sets of market groups:

The first group is all Lebanese residents that have internet access and the purchasing power. This market group will be buying the following merchandize categories:

• Imported Goods (Goods not available in Lebanon)

• Local Goods (For personal use and as gifts)

• Local Specialty Goods (Arts and Crafts)

The second group of potential customers is Lebanese Expatriates living abroad that have internet access and the purchasing power. This market group will be buying the following merchandize categories:

• Exported Lebanese Goods (Lebanese goods not available abroad)

• Local Goods (As gifts)

• Exported Local Specialty Goods (Arts and Crafts)

Finally, repeat customers are expected with a retention rate of 60% or higher. This is based on the fact that customers generally stick with a website that provides them with good service. Amazon for example has a retention rate of 80%. The Lebanese E-retailing industry lacks a clear leader and no major brands exist. Thus with limited effective competition, a 60% retention rate is very possible.

Strategy

Arabuy’s growth and success will depend largely on its strategy and its capability to expand its services to greater sectors of both the Lebanese and Expatriate population. In a low barrier to entry industry, Arabuy needs to always be a step ahead of its competition. As such, Arabuy has in place a 3 year plan with a number of premeditated improvements and expansions to its services.

As a summary, Arabuy will be going through a number of post launch expansions. These phases will be as follows:

• Phase 1: Focus on Specialty Goods Imports

• Phase 2: Expand to Local Goods Sales

• Phase 3: Expand to Local Specialty Goods Exports

These three phases are chronologically planned as such to provide the company with a number of advantages:

1. The various phases allow the company to determine and be in control of the pace of post launch growth. Also, this enables Arabuy to present measurable milestones to potential investors.

2. The scheduled improvements will also be a continuous display of Arabuy’s commitment to exceed customer’s expectations and keep its brand and service fresh.

3. Arabuy will be leveraging its business reach in each stage to catapult it to the next stage.

3 Venture Analysis

Analyzing Venture Attractiveness (using Porter’s 5 Forces)

Market Landscape

The online retailing business is picking up in Lebanon, but there is still a lack of well rounded sites that provide services at the capacity that Arabuy aims to provide. Sites that we have compared lack some of the following:

• Ease of Use

• Competitive Pricing

• Product Variety

• Security

• Comparison Shopping

Currently, the E-Retailing industry in Lebanon has a number of main stream E-retailers. Unfortunately, or fortunately for Arabuy, these retailers lack the core requirements of running a successful E-retailing business. Generally, some of the issues with the current services provided are:

• Slow browsing speed due to high density web design

• Cumbersome web structure

• Poor search capabilities

• Lack of focus; most websites sell products as well as services

• Poor display of products

• Limited selections

• Limited product options

• High Prices

• Lack comparison tools

• Poor user Interface

Competition

The competition landscape in Lebanon is divided in to two main categories. These are the traditional retailers as well as e-retailers. We have listed below the most recognized market leaders in this industry.

The indirect competition is comprised mainly of the following major traditional retailers

o Beirut Mall

o Hamra Shopping District

o Verdun Shopping Centers

o Beirut Souks

o Spinneys Lebanon

o ABC

In addition to the major traditional retailers, Arabuy will be competing with the smaller retailers. These are neighborhood retailers that provide some of the products that we Arabuy will be selling. They form a major competition with Arabuy because of their close proximity and usually high customer loyalty.

Nonetheless, this loyalty will be used to our benefit. Our business model extends the reach of retailers that use our service. Thus, initial customer loyalty to the shops will actually work in our favor in the form of free word-of-mouth advertising. Loyal customers can still work with their retailer and yet do that with the convenience of the net.

On the other hand, our direct competition is comprised of the following e-retailers:

o Amazon .com

o

o

o

o

Basis for Competition

As a company, our goal would be to provide an online retailing experience that surpasses current local e-retailers. Also since this is a new venture, we have the flexibility of combining proven business structures in new streamlined ways that will further strengthen our prospects for success.

Our goal is to provide an online B2C marketplace that will provide traditional retailers with an online access while providing customers with more choices. Our business model will focus on these customer centered values:

• Ease of Use

• Competitive Pricing

• Product Variety

• Security

• Comparison Shopping

Current competitors focus mainly on high end goods as well as Lebanese made products. Price and variety are not currently utilized for service differentiation.

Very little differentiation exists through the services provided. Generally, products are marked up over local retail prices to account for the e-retailer’s overhead, handling, shipping, and profit margin. This pricing model fails to create a benefit for the customer to buy merchandise online. Nevertheless, customers still buy for reasons related to convenience, as in the case of gift giving, and availability, as in the case of Lebanese exports.

In a survey we conducted in 2010, participants failed to consistently name any local online retailers. This signifies that there is very little effective competition. It also signifies a relatively new industry with the potential for Arabuy to be a leading player and build a strong brand.

Target Market (Size and Growth)

As described earlier, we will be targeting two main groups of customers; those are Lebanese residents and Lebanese expatriates.

We have detailed the market population in to the specific segments that we intend to target.

• Lebanese Residents: Total population is estimated at 4,017,095[5]

o Ages between 18 and 45: 1,550,000 (Estimated)

o Internet users: 1,000,000[6]

o High School Degree: 70.2%[7] of total population

o House hold income: Over $10,000 (71.45%[8])

Based on the above data, we can assume a market population of 1,000,000 *.8 (Estimated for age range) * 90% (Estimated for High School degree[9]) * 71.45%.

Thus a conservative estimate for the market base is just over 500,000 potential customers.

• Lebanese Expatriates [10]: Total population is estimated at 14,799,095[11]

o Lebanese Origin: 14,799,095

o Internet users: 51% (Estimated). Refer to Figure 1.

o Ages between 21 and 45: 62% (Estimated)

Based on the above data, we can assume a market population of 14,799,095 *51% * 62%. Thus a conservative estimate for the market base is just over 4,700,000 potential customers.

Figure 1: World Internet Penetration Rates

[pic]

For example, in 2010, around 250 million dollars were spent online in Lebanon. 90% of purchases occurred on foreign websites and 22% of those are spent on services[12].

Additionally, these segments are constantly growing. Specifically, the local Lebanese market is expected to grow by around 25% in the next 5 years (Refer to Figure 2). This high growth is attributed to a greater expansion of the IT infrastructure in Lebanon. This will be achieved through planned fixed lines internet expansion as well as mobile internet subscriptions. Alfa and MTC Lebanon (both main Lebanese mobile service providers) have implemented (3G) mobile phone technology. This means that more than 2.75m[13] mobile subscribers now have access to vastly improved internet services.

Figure 2: Internet Usage Growth Trend and Forecast (Conservative)

[pic]

On the international scene, the relative political calmness in Lebanon is increasing the likelihood of Lebanese expatriates returning to their home country. This strengthened bond with Lebanon will mean additional sales.

Also, based on the current migration rates (0.48% annually[14]) of Lebanese citizens to other countries in search of better jobs, the demand for e-retail services that connect them with their homeland will definitely increase.

Barriers to Entry and Market Structure

E-retailing is generally a low barrier to entry industry. Nonetheless, the barrier to entry is higher for western companies. This is because of the following:

• Regulatory and governmental state

• Political stability and security conditions

• Local cultural understanding

For local companies, the same is true except that they are familiar with working around the bureaucracies and are familiar with the culture.

With very low barrier for entry and a number of existing websites, the competition is high. The e-retailing industry in Lebanon very closely resembles a market with based on monopolistic competition.

Fortunately, the lack of differentiation between existing companies and the lack of focus on a clear marketing strategy, it becomes evident that there is a lot of potential for Arabuy to penetrate the market. This decentralized market leadership would help Arabuy get started and grow its customer base to a sizable share before any real competition ensues.

TOWS Analysis

Threats

The main threats to the e-retailing industry are centered on the political climate in Lebanon and the Middle East. Ever since the 1980s, Lebanon has been going through cycles of political and economic tension. These uncertainties have played a major blow to the growth of the economy as a whole and the IT sector specifically. As such, the country’s IT infrastructure has been struggling to keep up with the demand for more broadband speeds.

Other threats to the success of Arabuy’s business model are summarized below. You can also refer to Figure 3 for our SWOT analysis

• Weak mailing and delivery infrastructure.

• Cultural approach to online shopping vs. traditional shopping: The Lebanese find pleasure and excitement in traditional shopping.

• Geographical Considerations: Lebanon is a small country so e-retailing has to provide enough incentive and convince for shoppers to choose it over fast and easy traditional shopping.

• Regulatory Concerns: Lebanon has not yet implemented a complete set of laws to govern e-retailing. New enacted laws might negatively affect the performance of the company.

• Weak business protection rights: Politics and connection play a big role in how things are handled through the government. A major concern is that other influential competitors might involve such tactics to limit Arabuy’s potential and growth.

Figure 3: Arabuy SWOT Analysis

[pic]

Opportunities and Niches

As reflected in the SWOT analysis above, there are a number of potential opportunities we could take advantage of. These opportunities are rooted in our business model as well as the nature of the industry and the competition currently existing.

• Branding: through our survey and discussions with industry experts[15], it is clear that there is no market leader. We do not have data market on current share, but our research has shown that there is no current brand recognition for any of the players in Lebanon.

• Retailer Tools and Services: One of our business model’s core strengths is in the services and tools we provide existing traditional retailers. The current model for most e-retailers is to establish a website for their products or pool products from other websites in one website. Our approach is different. We will be empowering traditional retailers with tools and support services that will give them access to online retailing. This will give Arabuy exclusivity in its relationships with a larger pool of retailers. Also, this will allow retailers to generate more sales. Arabuy will leverage this advantage to the benefit the customer in the form of lower pricing.

• Market Expansion to the Middle East: Once Arabuy’s business model succeeds in Lebanon, implementing similar services in other ME countries can be easily replicated.

• Market Niche: Arabuy aims to focus on a niche market of Arts and Crafts in Lebanon. Since most players in this industry are small shops with little capital to expand in to the e-retailing industry, very few online services of this sort exist. Our research for such websites only exposed high end retailers. This, along with the great expatriate population is expected to be a very lucrative market segment.

TOWS Analysis

Using the TOWS Analysis we analyzed the external environment (Threats, Opportunities) and the internal environment (Weaknesses and Strengths).

Figure 4: Arabuy TOWS Analysis

| |External threats |External opportunities |

| |T1 Local competition |O1 New brand and brand building |

| |T2 Regulations and government Intervention |O2 Niche market |

| |T3 Big international players(Amazon) |O3 Expending to other ME markets |

| |T4 Lower entry barrier |O4 Small retailers servicing |

| |T5 Security in Lebanon |O5 Using of Mobile apps |

| |T6 Hard to change the purchasing habit of local |O6 The maturity of B2B/B2C application |

| |customers |O7 Potential for exotic goods |

| |T7 Customers Concern about delivery and warranty under |O8 Potential for time-saving and money-saving |

| |the low price |purchasing |

| |T8 Customers concern about the security of bank info. | |

| |T9 Customers & retailers concern the stability about the | |

| |on-line system including inventory system, purchasing | |

| |system accounting system..etc | |

|Internal weaknesses |Focus on specialty goods imports/exports like Arts and | |

|W1 Weak financial backing |Crafts (W1, W3, T3, O2, O4) |Build New and Memorable branding linking |

|W2 New market player |Start up a secure and low cost drop shipping website(W1, |internal and external marketing.( W2, O1) |

|W3 Weak local supply chain|T4, T5) |Innovate new business model based on |

|contacts | |traditional B2B/B2C(O6,W2,S1) |

|W4 weak public access | | |

|point | | |

|Internal strengths |Penetrate into Lebanon market quickly(S1,S4,T4) |Develop from specialty goods to various |

|S1 Strong international |Build a convenient and secure comparison e-shopping |goods(S1, S4, S5,S6, O2, O3) |

|management team |platform (S2, S3, S6,T1,T8) |Increasing the users by using website or |

|S2 Strong Information |Competitive Pricing(S7, T3) |mobile apps. (S2, O5) |

|technology team |Develop safe and stable network with suppliers(S1, S2, |Invest mobile telephone money to give free |

|S3 Strong web design |T2,T9 ) |access at hospital, school and etc.( W4,S5, |

|S4 Product focus |Apply for some Trade Secrets to enhance our power for |O5) |

|S5 Effective business |raising money and also for increasing our competitive |Improve technical for data protection(S2, O5) |

|model |ability ( W1,S1,S2,T3,T4) |Develop from Lebanon market to international |

|S6 Great retailer tool |Build a good consumption experience for local customers|market (S1,O7,O8 ) |

|S7 Strong international |(S1,S2,,S6,T6) | |

|supply chain contacts | | |

Actions 6, 8 ,14→ build a safe , convenient and stable e-shopping website

Action 1,2,7→ Focus on cheap specialty goods (arts or crafts)

Action 3,5→ build a memorable brand in Lebanon

Action 4,9→ by using trade secrets/patent/trade or other innovative ideas to create new business model.

Action 11,12,13,15→ develop from specialty products to various products by expanding our market.

PESTEL Analysis

We also analyzed the macro-environment, using PESTEL model.

| |Effect Factors |

|Political |war |

| |sectarianism |

| |corruption |

| |Tariff |

| |monetary policy |

| |import and export restriction |

| |The relations between Lebanon and US,between Lebanon and other |

| |countries. |

| |The government budget |

| |Supervision for internet /mobile industry |

|Economic |start up cost |

| |market cost |

| |global financial inflation |

| |exchange rate |

| |money market rate |

| |the trend of GDP |

| |inexpensive work force |

| |economic restructure |

| |$8.2 billion per year for remittance |

| |travel cost |

| |shipping cost |

|Social |online shipping culture |

| |using credit card |

| |change in taste |

| |multi-religions |

| |multi- languages |

| |per capita income |

| |life-style |

| |aesthetics and value standard |

|Technological |search engine hits |

| |vendor technical service |

| |shipping processes |

| |mobile apps |

| |Accounting tools |

| |data security |

| |website navigation |

| |Internet spread |

| |Internet penetration |

|Environmental |The development of e-commerce in global |

| |The trend of the e-commerce in Lebanon |

| |Media attention for e-commerce in Lebanon |

|Legal |customs and regulations |

| |labor Protection Act |

Mind Map Analysis

Arabuy provides the Lebanese Diaspora with a forum for purchasing uniquely Lebanese products and/or sending gifts and support to family while also providing Lebanese Vendors access to a broader customer base. We further analyzed this process using a Mind Map Analysis.

Figure 5: Arabuy Mind Map Analysis

[pic]

4 Findings and Recommendations

While the original Arabuy concept held significant promise, our in-depth analysis suggested that the initial focus and strategy was not the optimal approach. The initial plan called for a phased approach beginning with an e-retail platform targeting Lebanese consumers in Lebanon. However, both primary and secondary research indicated that Lebanese natives (business and consumer) have been relatively slow to adopt online purchasing, and the existing competition for that market is already highly fragmented.

In addition, the local infrastructure necessary to support a robust online marketplace is not yet solidly established in Lebanon. Arabuy would need to invest significant capital in order to gain credibility in the marketplace and would not have a significant competitive advantage based on the initial plan.

The initial plan also called for basing Arabuy operations in the Middle East, specifically in Lebanon. However, the SWOT, PESTLE, and TOWS analysis all indicate that such a decision would subject Arabuy to increased risk due to the socio-political volatility in the region.

Our initial assessment of the Arabuy concept was that it was simply not a viable plan, due to the highly fragmented marketplace, socio-political volatility, and high capital requirements.

However, in order to be certain that we were providing a fair and thorough evaluation of the Arabuy concept, we worked with the founder to develop a FAR analysis. We then used the FAR in conjunction with the other planning/evaluation tools that we created in order to develop an updated strategy that we believe will provide a much more viable opportunity for Arabuy (See Fig. 5 “FAR”).

Fig. 5: FAR Analysis

|Target Market |Products |Business Type |Business Strategy |

|Lebanese in Lebanon |Lebanese Specialty (Crafts, foods, etc.) |B2C |Volume Retail |

|Lebanese Diaspora |Lebanese Consumer Products |C2C |“Just Ask” |

|International Market (ALL) |Non-Lebanese/General Merchandise |B2B |Daily-Deals |

| | | |Discount Shopping |

| | | |Comparison Shopping |

| | | |Customized Services |

|Logistics |Product Ownership |Platform |Languages |

|Retailer Ships |Mixed (Ownership passes from seller to |Web-based |Arabic |

|Arabuy Ships |Arabuy to consumer) |Mobile App |English |

|Consumer picks up in-store |Drop Ship (Seller>Buyer) |Web-first then Mobile app |French |

|Out-source shipping (contract) |Arabuy buys/resells products |Mobile app first, then web |Spanish |

| | |Simultaneous Phone/Web |Portuguese |

| | | |Other |

Recommendation

Based on our analysis of the market and the Arabuy research, we believe there is a substantial opportunity for Arabuy to achieve significant market share by acting as a “facilitator” to online trade between local Lebanese merchants the millions of Lebanese living around the world who still seek ways to connect to family and the traditions of home.

Arabuy will establish an operational/sales base in Lebanon that will seek to build relationships with local merchants, particularly the single-vendor operations that provide uniquely Lebanese foods or crafts. Arabuy will concurrently work to develop a website (optimized for mobile viewing) that provides an “E-bay” type forum for buyers and sellers to connect online. However, in order to ensure that Lebanese vendors will list their products, Arabuy will provide listing assistance services, as well as provide a contract drop-shipping option to eliminate many of the traditional concerns associated with online retail. Since the bulk of the Lebanese diaspora is centered in South American and the United States, the website will provide English and Arabic language options initially with planned upgrades to add Spanish and Portuguese once the business is fully operational

5 Conclusions

After completing this analysis, we are more confident that Arabuy is modeled on sound economic basis. We have established a clear understanding of the market, our competition, and Arabuy’s potential for success. By utilizing the recommended strategies, Arabuy is now in a position to proceed with the next phase of developing this venture. Arabuy’s growth and success will depend largely on its strategy and its capability to expand its services to greater sectors of both the Lebanese and Expatriate population.

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[1] - Retrieved November 24, 2012

[2] - Retrieved November 24, 2012

[3] November 24, 2012

[4] -Retrieved November 24, 2012

[5] - Retrieved November 24, 2012

[6] - Retrieved November 24, 2012

[7] - Retrieved November 24, 2012

[8] - November 24, 2012

[9] Per the data, 30% of the population does not have a High school diploma. It is safe to assume that 90% of those will also be individuals living under the $10,000 cutoff. Thus we estimated that 90% of the individuals living over $10,000 also have a high school diploma

[10] All data will be estimated based on the weighted average of statistics from Brazil, Argentina, USA, Canada, and Europe (Countries with high populations of Lebanese expatriates).

[11] - Retrieved November 24, 2012

[12] - Retrieved November 24, 2012

[13] Retrieved November 24, 2012

[14] -Retrieved November 24, 2012

[15] These conclusions are based on our consolation with Amr Bohsali and Nader Kobeisi.

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