Authors: Josefine Vinberg, 21509

Emma Klintbo, 21718

Stockholm School of Economics
Department of Marketing and Strategy
Evaluating the attractiveness
of the B2C e-commerce
market in Dar es Salaam

Abstract: The e-commerce industry in Dar es Salaam is in an early stage. This thesis is an attempt to
scan the market and to evaluate its attractiveness. By doing so, we aim to be a help for
entrepreneurs planning on establishing an e-commerce business in Tanzania. We have performed a
qualitative study in Dar es Salaam, consisting of focus groups with consumers and interviews with
consumers and existing e-commerce companies. To complement the primary data, we have collected
secondary data.
From our study, we can conclude that the level of attractiveness of the market depends on if the
macro, meso or micro perspective is evaluated. The overall conclusion is though that the current
macro conditions decrease the attractiveness, as do the characteristics of the target customer
segments. The intensity of rivalry on the market is low, and the established companies do not have a
lead start compared to new entrants. Given the current conditions on the market, we would not
advice an entrepreneur to enter the market. The attractiveness of entering the market will, however,
change as the mind-sets of the consumers and the technical infrastructure develop.
Course 629, Bachelor Thesis in Marketing
Advisor: Anna Nyberg
Date of presentation: 14 June 2011
Examiner: Anna Nyberg
Keywords: E-commerce, market
attractiveness, Tanzania, developing markets,
focus groups.
1
NOTIFICATIONS

Asante Sana
Marie for giving us this opportunity.
Tonny for driving us around the peninsula.
Lina for sheltering us.
Loveness for giving us wonderful samosas.




We would also like to thank our advisor Anna Nyberg for her insights, comments and support during
the process of this thesis.

Finally we would like to thank Hans Lann, Godfrey Kamukala, Niyi Owolabi, Mr. Amiri, Mr. Petkit, and
all participants in the focus groups and interviews.



If the industry of e-commerce is going to have a chance to succeed in
Tanzania, all social actors; namely individuals, businesses, and
governments must take a joint responsibility
- Godfrey Kamukala, UN Tanzania

.Pole Pole
2
Table of contents
1. Introduction ............................................................................................................................. 6
1.1 Problem area ..................................................................................................................................6
1.2 Background .................................................................................................................................6
1.3 Purpose .......................................................................................................................................6
1.4 Research question ......................................................................................................................7
1.5 Expected contribution ................................................................................................................7
1.6 Delimitations ..............................................................................................................................7
1.7 Disposition ..................................................................................................................................8
2. The study context ..................................................................................................................... 9
2.1 Political background .......................................................................................................................9
2.2 Demographics .................................................................................................................................9
2.3 Trade and industries .......................................................................................................................9
3. Research design ....................................................................................................................... 10
3.1 Why focus groups? ...................................................................................................................... 10
4. Theory ..................................................................................................................................... 11
4.1 Theory selection .......................................................................................................................... 12
4.1.1 Cognitive factors ....................................................................................................................... 12
4.1.2 Disintermediation ..................................................................................................................... 12
4.1.3 Price transparency .................................................................................................................... 12
4.2 First mover advantage ................................................................................................................. 13
5. Method ................................................................................................................................... 13
5.1 Primary data ................................................................................................................................ 13
5.1.1 Interviews with existing companies ......................................................................................... 13
5.1.2 Focus groups with consumers .................................................................................................. 13
5.1.3 Interviews with consumers ...................................................................................................... 15
5.2 Secondary data ............................................................................................................................ 15
6. Quality of research .................................................................................................................. 16
7. Macro factors .......................................................................................................................... 17
7.1 Political, legal and financial factors ............................................................................................. 17
7.1.1 Bureaucracy and business climate ........................................................................................... 17
7.1.2 Government e-participation ..................................................................................................... 18
7.1.3 Level of taxation ....................................................................................................................... 18
3
7.1.4 Corruption & access to venture capital .................................................................................... 19
7.1.5 Governmental investments in infrastructure ........................................................................... 19
7.2 Economic factors ......................................................................................................................... 20
7.2.1 Basic economic data ................................................................................................................. 20
7.2.2 GINI Index ................................................................................................................................. 20
7.3 Social and cognitive factors ......................................................................................................... 20
7.3.1 Level of literacy and English ..................................................................................................... 20
7.3.2 Buyer sophistication ................................................................................................................. 21
7.4 Technical factors .......................................................................................................................... 21
7.4.1 Access to Information and Communications Technology (ICT)................................................ 21
7.4.2 The development of safe digital infrastructure ........................................................................ 21
7.4.3 Lack of electronic supply and cost level of Internet subscriptions........................................... 22
7.4.4 Payment methods .................................................................................................................... 22
8. Existing e-commerce businesses in Dar es Salaam ..................................................................... 23
8.1 Atsoko .......................................................................................................................................... 23
8.2 Kivuko .......................................................................................................................................... 24
8.3 Leteonline .................................................................................................................................... 25
8.4 Clarification of the used business model .................................................................................... 27
9. Consumers buying patterns and attitude towards e-commerce ................................................ 27
9.1 How do you use Internet today? In what extent are you familiar with Internet shopping? ..... 27
9.2 What keywords would you use when searching for a specific product to buy online? .............. 28
9.3 What are the pros and cons with Internet shopping? ................................................................ 28
9.4 Demanded products and price levels .......................................................................................... 29
9.4.1 Shoes and clothes ..................................................................................................................... 29
9.4.2 Sport and kids articles .............................................................................................................. 29
9.4.3 Electronics and books ............................................................................................................... 30
9.4.4 Do-it-yourself-products, furniture and kitchen supplies .......................................................... 30
9.5 Do you miss any other products on the local market in Dar es Salaam today? .......................... 31
9.6 How do you want to pay for the product that you order online? ............................................... 31
9.7 What about delivery time? Lead time? Delivery process? .......................................................... 31
9.8 Summary of focus group and interview findings ......................................................................... 31
10. Analysis ................................................................................................................................. 32
10.1 Intensity of rivalry ...................................................................................................................... 32
10.1.1 Structure of competition and costs ........................................................................................ 32
4
10.1.2 Degree of differentiation among the existing companies ...................................................... 32
10.1.3 Costs for potential customers when switching from one e-commerce distributor to another32
10.2 Barriers to entry ........................................................................................................................ 33
10.2.1 Economies of scale for existing companies ............................................................................ 33
10.2.2 Capital requirements and access to financing ........................................................................ 33
10.2.3 Government policy, bureaucracy and corruption .................................................................. 34
10.2.4 Brand identity ......................................................................................................................... 34
10.2.5 First mover advantage ............................................................................................................ 35
10.3 The bargaining power of suppliers ............................................................................................ 35
10.3.1 The middle-man business model changes the classical seller buyer relationship ................. 35
10.3.2 Undifferentiated assortment decreases the suppliers bargaining power ............................ 35
10.3.3 Threat of suppliers forward integration in the supply chain ................................................. 36
10.4 Consumers substitution of current shopping behaviour ......................................................... 36
10.4.1 Consumers willingness to substitute their current shopping habits to e-commerce ........... 36
10.4.2 The consumers cost of switching to online shopping ........................................................... 37
10.5 The risk of consumer disintermediation ................................................................................... 37
10.6 Market readiness ....................................................................................................................... 38
10.6.1 Estimated market size ............................................................................................................ 38
10.6.2 Consumer readiness .............................................................................................................. 38
[Link] Trust issues .......................................................................................................................... 38
[Link] Computer and language knowledge ................................................................................... 38
[Link] Consumers willingness to pay ............................................................................................ 39
[Link] The price transparencys effect on willingness to pay ........................................................ 40
10.6.3 Governmental readiness ....................................................................................................... 40
[Link] Government e-participation ................................................................................................ 40
[Link] Level of taxation .................................................................................................................. 40
10.6.4 Infrastructure readiness ......................................................................................................... 41
[Link] Access to Information and Communications Technology ................................................... 41
[Link] Lack of access to advanced payment methods ................................................................... 41
[Link] Transportation infrastructure ............................................................................................. 42
11. Concluding discussion ............................................................................................................ 42
11.1 How do the macro conditions affect the attractiveness of entering the B2C e-commerce
market in Dar es Salaam .................................................................................................................... 42
11.2 How do the industry setting affect the attractiveness of entering the B2C e-commerce market
in Dar es Salaam ................................................................................................................................ 43
5
11.3 How do the characteristics of the potential customer segments affect the attractiveness of
entering the B2C e-commerce market in Dar es Salaam .................................................................. 43
11.4 Overall conclusion ..................................................................................................................... 44
12. Advise to entrepreneurs ........................................................................................................ 44
13. Limitation and suggestions for further research ...................................................................... 45
References .................................................................................................................................. 46
Appendix 1 - Glossay ................................................................................................................... 49
Appendix 2 Figures and charts ................................................................................................... 50
Appendix 3 Example on the focus group exercise ....................................................................... 54
Appendix 4 Interview manuscript, existing companies ................................................................ 56



6
1. Introduction
1.1 Problem area
Over the past ten years the worldwide distribution of Internet has increased dramatically. Among
other things, this has led to a fast growth of e-business and e-commerce
1
(Mansah et al). In a
historical perspective, the Internet has diffused at a far faster rate than earlier generations of
communications technology. From 1990 to early 2000, the estimated number of users worldwide
grew from around one million to around 300 million ([Link] et al). This makes the development
of e-commerce a research area that is in constant need to be updated with new findings.

Africa is one of the fastest growing developing areas in the world today
2
, according to annual GDP
growth (Indexmundi, a 2011). The e-commerce industry has reached the continent, but compared to
the rest of the world the development has been slow. The slow growth can be explained by various
factors; among which low levels of Internet penetration and limited communication structure are
two of the most important (Mansah et al). The lack of trust in e-commerce and advanced payment
methods also constitute an obstacle for the industry.
Today the entrepreneurs who start up e-commerce in developing countries often lack an insight in
the market conditions. This contributes to that they fall into pitfalls and spend their resources in a
suboptimal way.
1.2 Background
The current attention in Swedish media
3
in late 2010 and early 2011 about the development and
strong economic growth in East Africa made us interested in it as a research area. To study the
attractiveness of the e-commerce industry was tempting, since [Link] businesses often are
associated with developing markets and new eras.
1.3 Purpose
Our purpose with this study is to create a sort of manual that will simplify for future establishments
of e-commerce in Tanzania. We have taken an entrepreneurial perspective; that is we have
evaluated the market attractiveness for small companies rather than for big corporations.

1
Electronic commerce is the buying and selling of information, products and services via Internet
2
[Link]
3
E.g. DN and SVT
7
1.4 Research question
In accordance to the stated purpose, our research question is:
- How attractive is it for entrepreneurs to enter the B2C e-commerce market in Dar es Salaam?
In the scope of this thesis, we have chosen to interpret attraction as a generic term for the potential
overall industry profitability. The governmental regulations, the industry settings and the consumer
characteristics have a joint impact on the potential profitability in an industry, and therefore we will
evaluate the market attractiveness from three perspectives; the macro, the meso and the micro
perspective.

We will use three sub questions to evaluate in which aspects each of the three perspectives are
attractive, and in which they are not.

-How do the macro conditions affect the attractiveness of entering the B2C e-commerce market in
Dar es Salaam?
-How do the industry settings, or the meso conditions, affect the attractiveness of entering the B2C
e-commerce market in Dar es Salaam?
-How do the characteristics of the potential customer segments, or the micro conditions, affect the
attractiveness of entering the B2C e-commerce market in Dar es Salaam?
1.5 Expected contribution
We believe that this study will help to fill a gap in the research about e-commerce markets in East
Africa. Its qualitative approach with focus on consumer demand and attitudes towards e-commerce
will work as a complement to earlier quantitative studies.

Further, this thesis constitutes a form of guidance for entrepreneurs planning on establishing an e-
commerce business in Tanzania. It can be considered as a first scan of the potential market, and the
findings will hopefully help entrepreneurs to avoid pitfalls.

1.6 Delimitations
Due to the time and resource constraints of this thesis we felt it was necessary to limit the scope.
First of all we have focused our research on Dar es Salaam. A lot of the findings can probably be
8
applied on other parts of Tanzania and East Africa, but that lies outside the purpose of this study.
Second of all, we have limited the study to the B2C market.
In this study we define e-commerce to be Internet based business-to-consumer (B2C) distribution of
consumer goods. We only study the commerce of imported products, and services are entirely
excluded from the scope. We have chosen to take a supply-side perspective, meaning that we will
analyze the market from a business point of view. We have focused on the perspective of three
small e-commerce companies in Dar es Salaam
4
, and as a result we have excluded the perspective of
large international enterprises backed up with big investments.
We have also delimited the scope to the expat community and to local Tanzanians with computer
and Internet access. To interview poor and illiterate people without any previous IT experience or
knowledge would be pointless since these groups lie outside the current e-commerce target groups.
This group, which is often referred to as the Base of Pyramid, constitutes a big part of the
Tanzanian society and their total purchasing power should of course not be ignored. As technology
develops and cheaper solutions become available on the market, they will too take part of the e-
commerce customer base. This though lies ahead of us, and it is therefore not in the scope when
estimating the attractiveness of todays market conditions.
Finally, to limit the scope we have only examined the direct competition on the market for B2C e-
commerce in Dar es Salaam.
1.7 Disposition
To simplify for the reader, we will here introduce the disposition of this thesis.
Chapter 2, The study context, is a short introduction to Tanzania and its society. This text will give
the reader a better understanding of our findings. Chapter 3 describes how we have structured our
research and why we chose to conduct focus groups. Chapter 4 explains the theoretical framework
for the thesis and in chapter 5 we describe the method for how we carried through each part of the
data collection process. Chapter 6 is a statement of the efforts we have made to assure the quality of
the research and chapter 7 describes the secondary data. The secondary data findings are presented
according to the PEST-framework. To use this framework as a tool makes the presentation clear and
easy to grasp. Chapter 8 is a summary of the most relevant findings from the interviews with the
existing companies and chapter 9 describes the focus group and interview findings. The order in
which we present the data is structured according to the three sub research questions. The data

4
Atsoko, Kivuko and Leteonline
9
presentation is followed by the analysis, in chapter 10. The analysis is structured according to the
classic Porter model of competitive industry structure, where some adjustments have been made to
adapt it to our scope. Chapter 11 presents the concluding discussion, and here we answer the three
sub questions in order to be able to give an answer to our main research question. The conclusion is
followed by advice to entrepreneurs who are planning on establishing a business on the Tanzanian
B2C e-commerce market, in chapter 12. Chapter 13 consists of a limitation and suggestion for further
research.

2. The study context
2.1 Political background
Tanzania was under British control until 1964 when the socialistic Tangayika African National Union
formed the first independent government. Since 1992, Tanzania has a multiparty system. The
increased level of democracy and the introduction of market economy have evidently contributed to
a more open and favorably business climate. Compared to many of its Sub-Saharan neighbors,
Tanzania is a politically stable country without any major national conflicts (Landsguiden, a).
2.2 Demographics
With around 42.7 million inhabitants and an area of 947,300 square kilometers, Tanzania remains
one of Africas least urbanized countries. In 2010, 26 % of Tanzanias population was labeled as
urbanized, the rest of the population lived on the countryside. The annual growth of urbanized
population is 4.7 % (CIA,a). Dar es Salaam with a population of 3.2 million inhabitants is Tanzanias
largest city and its economic and cultural center.
Tanzania has a young population, 42 % are younger than 14 years old, and the median age is 18.5
years old. The current life expectancy at birth is 52.8 years old (CIA, b). The official language is
Kiswahili, but English is used at higher education. The adult literacy rate is 66.9 % among women and
79 % among men
5
(UNESCO Institute for Statistics).
2.3 Trade and industries
Tanzania reported a trade deficit on 200 million USD in January of 2011. The Tanzanian economy
depends heavily on agriculture, which accounts for more than 40 % of GDP, provides 85 % of exports
and employs 80 % of the work force. The nation has many natural resources, for example natural gas,

5
Among adults 15 years and older, numbers from 2009.
10
gold, diamonds and coal (Trading Economics, 2010). The primary exported goods in Tanzania include
agricultural commodities, manufactured products, gold, cashew nuts, coffee and cotton. The largest
part of the export goes to neighbouring countries. The informal economy in Tanzania is significant;
many peddlers sell products at the market or at the street. Goods such as second hand clothing,
household goods, cloth, food, drinks and snacks dominate the informal trade.
3. Research design
To get a deep understanding of the consumer market in Dar es Salaam, we chose to conduct a
qualitative study. The qualitative research consisted of focus groups, interviews with potential
customers and with existing companies. The research part of the thesis was conducted during five
weeks in Dar es Salaam. The main reason to the qualitative approach was that we wanted to
understand the underlying needs among the consumers in Dar es Salaam, and not only observe
quantitative trends.

To complement our qualitative findings on the customer market, we also collected secondary data.
We have used these data as a tool to interpret the results from the qualitative study.

The e-commerce industry in Dar es Salaam is in a very early stage, and few scholarly articles have
been written about it. Since the published literature on the subject was scarce, we instead did a
review on what was written on closely related subjects, such as e-commerce in developing countries
in general or first mover advantages in the e-commerce business.

3.1 Why focus groups?

A focus group is a form of group interviews that encourage communication in a special subject with
some research participants in order to generate data (Kitzinger, J. 1995). The technique is especially
effective when the aim is to generate new ideas and to discuss both pros and cons for a particular
product or service (Stewart, D.W and Shamadasani, P.N. 1990). A focus group session is an effective
way to get different point of views on a subject. It gives an opportunity to start a discussion about
different sub subjects instead of asking each person to respond a question, as in interviews. This
makes the participants exchange experiences and comment on each others experiences which will
give the researchers a deeper understanding in the discussed area (Kitzinger, J. 1995).

This thesis has a supply-side perspective, but to be able to understand the demand side it is
important to include it in the scope of the study. Our ambition with the focus groups was to get
11
many different points of views on the demand of customer goods and the attitudes towards e-
commerce as possible.

12
4. Theory

4.1 Theory selection

During the focus group sessions and the interviews, the respondents sometimes came up with
opinions that took us by surprise. These were opinions that we did not anticipate when constructing
the original manuscript, and they perplexed us. To explain these phenomenons, we employed
accepted theories on consumer behavior.

4.1.1 Cogitative factors

Cognitive factors are related to mental maps of individuals and organizational decision makers that
can create cognitive barriers to enter a market (Huff,A.S 1990 in Kshetri, N. 2007). Examples of
cognitive factors are limited awareness and knowledge skills and lack of trust in new market systems.
According to Kshetri (2007), cognitive patterns can create higher barriers in developing countries,
compared to other categories of barriers. In developing countries the big trust in face-to-face
communication, technical knowledge and a lack of awareness of potential opportunities often lead to
cognitive barriers to new inventions and digital development, discussion e-commerce (Kshetri,N.
2007).
4.1.2 Disintermediation
Disintermediation is the removal of intermediation in a supply chain, a way of skip one step in the
traditional supply chain
6
. This is a phenomenon that has become more common with the
development of e-commerce. In the e-commerce market, companies can deal with customers
directly, without using middle-man services. When buyers get increased information on the supplier
prices in the market, the market becomes more transparent (Smith, M.D, et al 2009).
4.1.3 Price Transparency

Price transparency occurs when information about the price setting of a product is fully available to
the consumer. Practically, this means that the consumer is aware of what factors or which processes
that constitute certain parts of the end price. A high level of price transparency helps the consumer
to evaluate the price, and therefore affects the consumers willingness to pay. Most often, the

6
Such as distributor, wholesaler, agent.
13
consumers willingness to pay for a product is decreased as price transparency increases (Granados,
N. et al 2004). The customers increased access to information through Internet has increased their
ability to easily compare different sellers. This in turn often leads to disintermediation.

4.2 First mover advantage
Charpentier and Natamoto (1989) argue that the process by which consumers learn about brands
and form preferences for them has an important role in creating an advantage for pioneers in a new
market. They explain this with two components. First, to be the pioneer in a market gives the
company an opportunity to affect how the customer attributes are valued and what the ideal
attribute combination looks like for the customer. This influence can shift individuals preferences to
favor the pioneer over the later entrants, leading to an advantage that can increase the market
share. Secondly, they argue that the learning process that a first mover has to carry to learn the
customers about a new product or service, can lead to that the pioneer can become strongly
associated with the product category as a whole and, as a result, become the standard against
which all later entrants are judged (Charpentier, G S. et al 1989).

5. Method

5.1 Primary data

5.1.1 Interviews with existing companies

To get an insight in what it is like to start up and run a B2C e-commerce business in Dar es Salaam,
we decided to contact representatives from established companies. Interviews were conducted with
the founders of three e-commerce businesses. Since the industry for this type of e-commerce is still
in an early stage in Dar es Salaam, this represents a majority of the existing companies.

5.1.2 Focus groups with consumers

During the time in Dar es Salaam, we conducted six focus groups. Each group contained four to eight
participants, a number recommended by researchers (Kitzinger, J. 1995). To get the best possible
insight in the customer demand we strived to arrange as homogenous focus groups as possible. This
is an approach recommended by most researchers. The homogeneity makes it easier to capitalize on
14
peoples shared experience and will encourage a deeper discussion (Kitzinger, J. 1995).

Since the respondents were men and women of different nationalities, ages, occupations and
education level, the ambition of homogeneity had to be somewhat compromised. We decided that
the most important factor was that the respondents in each focus group would have a comparable
experience of e-commerce and similar consuming habits, since these are basic conditions for a rich
discussion. This resulted in that we tried to divide the respondents according to the variables
nationalities (expats or locals), age (over and under 35 years old), and gender.

Due to that e-commerce is an unfamiliar subject for many people in Dar es Salaam, the first
questions discussed in the focus group were about the participants Internet usage and earlier
experience of e-commerce. This gave us an insight in how to lead that specific group trough the
session. Next module contained more specific questions about price sensitivity, security, delivery and
payment methods. To get an insight in which product categories the participants were willing to buy
online and how price sensitive they were we conducted an exercise. We chose various product
categories and set price intervals according to prices charged by the existing e-commerce businesses
for similar products
7
. It was stressed in the instructions that the expatriate participants were
supposed to answer from of the perspective that they have living in Dar es Salaam, not in their home
countries. The participants were informed that the pictures of the products represented a generic
product, not necessarily the exact one on the picture. Regarding to Kitzinger (1995) it is favorable to
use exercises for a break in the discussion as well as to give the participants a chance to express their
opinion in a clearer way. Every session lasted for one to two hours, a duration recommended in the
literature (Kitzinger, J. 1995).
However, it is important to keep in mind that the main strength of this method is as well its greatest
weakness, namely that respondents are influenced by each other and in settings with particularly
dominant individuals, this could result in unexpressed opinions (Flick 2009, p. 201)


7
Including shipment, shipment insurance delivery, VAT and duties
15
5.1.3 Interviews with consumers

As a complement to the focus groups, we conducted deep interviews with some consumers. This
increased our understanding of the reasoning of some customer groups. The cognitive patterns of
the people in the western expat community lie close to our own. When it came to the Tanzanians
and other expat groups though, we sometimes felt that they had more to contribute with than we
could obtain from the focus group sessions. We conducted five deep interviews, both face to face
and in smaller groups of three.

Men Women Locals Expats Age
Focus Group 1 x x X 35-
Focus Group 2 x X 35+
Focus Group 3 x X 35+
Focus Group 4 x x x 35-
Focus Group 5 x x X 35-
Focus Group 6 x x 35+
Interview 1 x X 35-
Interview 2 x x 35+
Interview 3 x X 35+
Interview 4 x x 35-
Interview 5 x x 35+

Figure 1, Summary of the conducted focus groups and interviews

The expatriates were men and women of different nationalities, working for embassies, NGOs and
international businesses as well as accompanying spouses. The locals were men and women, either
self-employed, business men or students.

5.2 Secondary data

As a complement to our qualitative study, we have collected secondary data from various sources.
A lot of the data comes from The Global Information Technology Report. This report is published
by the World Economic Forum (WEF) in cooperation with INSEAD
8
, and consists of qualitative as well
as quantitative measurements. The qualitative data comes from the WEFs Executive Opinion Survey.
The survey is conducted annually in the 138 economies that are evaluated in the Global Information

8
A graduate business school
16
Report. The respondents are 15,000 executives from the World Economic Forums partner institutes,
mainly research institutes and business organizations (Dutta, S and Mia, I, p.10 2011). The purely
quantitative data reported in the Global Information Report comes from international organizations,
such as the World Bank and various United Nations agencies.

For statistics regarding economics we have used two main sources: the CIA World Factbook and
Gapminder. The Central Intelligence Agency (CIA) is an independent US Government agency which is
responsible for providing national security intelligence to senior US policymakers. Gapminder
9
is a
non-profit venture promoting sustainable global development.

As a compliment to the main resources we have collected statistics from UNESCO, [Link],
[Link], [Link], the official webpage of the Tanzanian government, the Transparency
International and Tanzania Investment Center.

6. Quality of research

To ensure the quality of this study, we have taken a series of actions. Before going to Tanzania, we
read material on the Tanzanian development and society, as well as read fiction written by Tanzanian
authors. This was done to gather a deeper understanding of the Tanzanian mind, and to eliminate
prejudices that could affect the research.

To control the quality of the research method we conducted a focus group session in Stockholm,
before going to Tanzania. This was to get a chance to practice to lead a session and to take notes,
and most importantly to get feedback from the participants on the focus group structure and
disposition. We also used feedback from the respondents in Tanzania to constantly refine the
manuscript. To ensure that we did not misinterpret any results from the focus group sessions, we
conducted complementary deep interviews with customers from customer groups whose cognitive
pattern and reasoning were distant from our own. During the first focus group exercise in Tanzania
we paid attention if the participants asked for any product category that we had not included in to
the exercise from the beginning.

When it comes to the collection of secondary data, we have used statistics from credible sources. To
reduce the risk of misinterpretations from using statistics measured with different methods, we have

9
[Link]
17
as far as possible tried to limit the number of sources. We have cross read all articles of related areas,
this to ensure the understanding of the content.

7. Macro factors
The most relevant macro factors are presented below, structured according to the PEST-framework.

7.1 Political, legal and financial factors

7.1.1 Bureaucracy and business climate

During the last years, the Tanzanian government has put some effort into attracting foreign
investments. But, there is still a long way to go before Tanzania becomes fully entrepreneur and
business friendly. In 2011, the World Bank project Doing Business ranked Tanzania as number 128
out of 183 economies in an Ease of Doing Business report (WBG, a 2011).

According to the same report it takes 29 days to set up a business in Tanzania
10
. The procedure is
rather efficient compared to other Sub-Saharan countries where the average process takes 45.2
days, but still a lot slower than in OECD-countries where the average procedure takes 13.8 days
(WBG, b 2011).
The Ease of Doing Business report also evaluates the number of procedures required to register a
firm
11
. In Tanzania, an entrepreneur has to go through twelve different procedures, whereas the Sub-
Saharan Africa average is 8.9 and the OECD average is 5.6 (WBG, b 2011).
In the Global Information Technology Report (Dutta, S and Mia, I 2011), the level of administrative
requirements is measured by asking the following question in the Executive Opinion Survey How
burdensome is it for businesses in your country to comply with governmental requirements
12
? On a
scale from 1 (extremely burdensome) to 7 (not burdensome at all), Tanzania gets a score of 3.34
13
,
slightly less burdensome than the world mean of 3.29.


10
The total number of days required to register a firm. The measure captures the median duration that
incorporation lawyers indicate is necessary to complete a procedure with minimum follow-up with government
agencies and no extra payments.
11
A procedure is defined as any interaction of the company founders with external parties (for example,
government agencies, lawyers, auditors or notaries).
12
E.g. permits, regulations, reportings
13
Sweden: 4,04 and South Africa: 3
18
7.1.2 Government e-participation

The United Nations has compiled a so called e-participation index. This index assesses the quality
of government websites, namely in what extent they are relevant and useful for the user. It also
assesses the willingness of the government websites for providing online information, participatory
tools and services to the people. The examined nations are ranked between 0 and 1, where 1 is the
highest. Tanzania gets a score of 0.04 in this assessment, far behind its neighbor Kenya (0.17) (Dutta,
S and Mia, I 2011).
The issue about the governments attitude towards ICTs is also examined in the Global Information
Technology Report (Dutta, S and Mia, I 2011). In the Executive Opinion Survey, the following question
is asked: How much priority does the government in your country place on information and
communication technologies?. Tanzania gets a score of 4.17 on a scale from 1 (weak priority) to 7
(high priority). The world mean is 4.66 whereas Sweden gets 6.07 and South Africa 4.22.
7.1.3 Level of taxation
In the Global Information Technology Report (Dutta, S and Mia, I 2011), the total tax rate in a country
is measured. The measurement used is the sum of profit tax, labor tax and social contributions,
property taxes, turnover taxes, and other taxes, as a share (%) of commercial profits. Tanzania has an
estimated total tax rate of 45.2 %; Sweden 54.6 % and South Africa 30.5 %
14
.
The import duty on finished consumer goods is 25 %. Some items, such as computers, books and
mobile phones are exempted (TIC 2010). On some products, such as alcohol, cigarettes, soft drinks
and cosmetics there is an additional excise duty (OOGURT, b).
The VAT rate in Tanzania on goods and services is 18 %. Although, there are some imported supplies
that are exempted from VAT, such as health supplies, educational supplies, books, newspapers,
computers and computer accessories. The Tanzanian corporate tax is 30 % (OOGURT, b).
When the World Economic Forum examined the impact of the tax level on peoples and companies
behavior in the Executive Opinion Survey, they asked: What impact does the level of taxes in your
country have on incentives to work or invest?. On a scale from 1 to 7, where 1 is equivalent to
significantly limits incentives to work or invest and 7 is equivalent to has no impact on incentives
to work or invest, Tanzania gets a score of 3.59. This is almost the same score as the world mean

14
2010
19
(3.6) and signifies a lower effect on incentives than in for example Sweden (3.04) (Dutta,S and Mia, I
2011).
7.1.4 Corruption and access to venture capital
Transparency International collects data over how a countrys inhabitants perceive the national
corruption. They have created a corruption perception index from 0 (highly corrupt) to 10 (highly
clean). For Tanzania, the 2010 corruption perception index value is 2.7
15
. That makes Tanzania the
25
th
most corrupted country in Sub-Saharan Africa
16
(out of 47 nations totally) (Transparency
International 2010).
In the Global Information Technology Report (Dutta, S and Mia, I 2011), the ability for entrepreneurs
to get venture capital is measured. This is done through the Executive Opinion Survey, where the
following question has been asked In your country, how easy is it for entrepreneurs with innovative
but risky projects to find venture capital). Tanzania gets a score of 2.57 on a scale from 1 (very
difficult) to 7 (very easy). To put this in some perspective, it can be said that the world mean is 2.67
and that Sweden gets 4 and South Africa 3.01.

7.1.5 Governmental investments in infrastructure
The development of the transportation infrastructure in a country affects the attractiveness to enter
the country for a new business. Poorly developed infrastructure decreases the possibility to have
well developed logistical solutions in the country. Tanzania would need to invest USD 2.9 billion
annually for a decade to catch up with the rest of the developing world in terms of infrastructure
(African Development Bank Group 2010).


15
The Corruption Perceptions Index (CPI) ranks countries according to perception of corruption in the public
sector. The CPI is an aggregate indicator that combines different sources of information about corruption, making
it possible to compare countries.
16
Together with Ethiopia, Mali and Mozambique
20
7.2 Economic factors
7.2.1 Basic economic data
Tanzania is one of the worlds poorest economies in terms of per capita income (IndexMundi, b).
Despite this, Tanzania has been one of the fastest growing economies in Africa in the last decade. In
the end of 2010 the annual Gross Domestic Product (GDP) Growth in Tanzania was 6.1 %, which is
higher than the average world GDP Growth (4.2 %) as well as the Sub-Saharan Africa (4.6 %) for the
same time. The inflation level has been stable compared to the level in other African countries. The
average inflation rate
17
in the Sub-Saharan African countries for 2010 was 23.21 %, and the average
level in Tanzania was 12 % (IndexMundi, a).
7.2.2 GINI Index
The GINI Index measures the distribution of income among individuals or households within an
economy. The GINI Index is measured on a scale from 0 to 100, where 0 indicates perfectly equal
income distribution in the country and 100 indicates that the incomes are distributed with perfect
inequality. The Central Intelligence Agency (CIA) has ranked 136 countries regarding to the GINI
Index. Tanzania is ranked as number 88 with a score of 34.6, compared to Sweden which is the
country with most equal distributed income, with a score of 23. South Africa has the worlds second
most unequal family income distribution, with a score of of 65 (CIA, c).
7.3 Social and cognitive factors

7.3.1 Level of literacy and English

The Tanzanian level of literacy is 66.9 % for women and 79 % for men, which is around the median
level for Sub-Saharan African countries
18
(UNESCO Institute for Statistics 2010). Among the one third
of adult Tanzanians that are illiterate, the proportion is significantly higher among rural women
(Landguiden, c).

Even though Tanzania used to be a British colony, today only approximately 9.89 % of the Tanzanian
people speak English (Crystal, D. 2003). In Dar es Salaam and Tanzania, English is taught in some
primary schools. It is also used as the medium of instruction in all secondary schools and higher

17
Customer prices
18
Among adults 15 years and older, numbers from 2009
21
learning institutions in the country. Still there is a big lack of English knowledge among ordinary
people, in the cities as well as in the countryside (AllAfrica 2011).


7.3.2 Buyer sophistication

When the World Economic Forum used the Executive Opinion Survey to examine the buyer
sophistication in different nations, they asked the question In your country, how do buyers make
purchasing decisions? The answers were given in range from 1 (based solely on the lowest price) to
7 (based on a sophisticated analysis of performance attributes). The score for Tanzania was 2.88
(Dutta, S and Mia, I 2011).

7.4 Technical factors

7.4.1 Access to Information and Communications Technology (ICT)

In 2008, only 2.5 % of the Tanzanian households were equipped with a personal computer (Dutta, S
and Mia, I 2011). In 2009, 1.6 % of the population used the Internet, but there were only 2841
subscribers of fixed broadband in the whole country (ITU 2011). This makes the share of the
population who subscribed to broadband Internet so low that it can be rounded down to 0,0 %
19

(Dutta, S and Mia, I. 2011). In addition to these consumers, 398,000 consumers had fixed Internet
subscriptions, which is equivalent to 0.91 % of the population. Compared to the fixed alternatives,
mobile broadband has become a success in Tanzania. In 2009, there were 601,324 sold subscriptions,
or 1.37 per 100 inhabitants. The percentage of Tanzanian people using the Internet grew from 0.1 %
in 2000 to 1.6 % in 2009, but there is still a long way to go before the country reaches the level of the
one in European countries (ITU 2011).

7.4.2 The development of safe digital infrastructure

In Tanzania, there is an estimated 0.2 secure Internet servers per million inhabitants. This can be
compared to Sweden where there are 956.7 secure servers, and South Africa where there are 40.4
servers. Secure servers in Tanzania are not only thing lacking, the international Internet bandwidth is
also extremely low. In 2007, the international Internet bandwidth (Mb/s) per 10,000 inhabitants in

19
0,01 % if two decimals are used
22
Tanzania was estimated to 0.0. The same variable gave a value of 498.3 in Sweden and 0.7 in South
Africa (Dutta, S and Mia, I 2011).

7.4.3 Lack of electric supply and cost level of Internet subscriptions

There are several factors behind the relatively slow spread of Internet in Tanzania. One is the lack of
electrical supply, especially in the rural areas. In Tanzania, the electrical production per capita and
year is 101.1 kWh, substantially lower than in Sweden (16267.9 kWh) and South Africa (5398 kWh).
Another factor that affects the spread of Internet services is the cost level. In 2009, the average
monthly subscription charge for fixed (wired) broadband service in Tanzania was 60.62 PPP $
20
. This
is significantly higher than in Sweden (28.25 PPP $) and in South Africa (41.68 PPP $) (Dutta, S and
Mia, I 2011).

7.4.4 Payment methods

In Tanzania, the access to advanced payment methods is still very limited. Payment cards are very
rare among locals. The most widely used type of card in Tanzania is the debit card
21
. In 2008, about
1.76 million debit cards were in circulation in the country. In addition to his, 929,000 cash cards
22
and
15,000 credit cards were in circulation. The low number of payment cards on the market results in a
low number of automatic teller machines (ATMs). In 2008, there was as little as 591 ATMs in the
whole of Tanzania. In addition to this, the Tanzanians could withdraw money from 3401 EFTPOS
terminals
23
. The normal way of payment in Tanzania is by cash, no matter if the consumer is shopping
for groceries or a new car. A lot of people also receive their salaries in cash (SADC 2010).

In 2007, Safaricom
24
in Kenya introduced a new way of handling bank and money transfer. The
system is called M-PESA, where M stands for Mobile and PESA is money in Swahili. The system has
become a success and now other mobile operators such as Tigo and Zantel have introduced their
own systems for mobile payments. This method is by far more popular than credit cards, and it is
convenient to use in rural areas where it sometimes can be a long distance to the nearest bank office
or ATM (Wikipedia 2011).

20
The amount is adjusted for purchasing power parity (PPP) and expressed in international dollars.
21
Such as VISA
22
A cash card is a card which you only can use to withdraw money from your bank account
23
The general term used for debit card based systems used for processing transactions through terminals at
points of sale
24
An affiliate of Vodafone
23
When consumers are given an opportunity to consume and participate, they will! Arun Sarin, CEO
Vodafone

8. Existing e-commerce businesses in Dar es Salaam
As said earlier, the e-commerce industry in Dar es Salaam is very young. There are a few established
companies on the market, and we have conducted interviews with three of them. The company
representatives that we met were all very open and the conversations gave a transparent and honest
picture about their ideas of the market and the future. All interviews were conducted in March 2011,
and the later analysis is based on what was said then, not on later conditions.

8.1 Atsoko
Atsoko is a Swedish owned company, set up in 2010. The company is registered in Sweden, Tanzania
and Rwanda. The Tanzanian web page has been running since mid-February 2011, about three weeks
at the time for the interview. The company consists of the CEO, one representative in Tanzania and
one representative in Rwanda. Atsoko also has a local investor and advisor in Tanzania, which was
necessary to get a business license
25
. During the time for the interview, Atsoko is in the process of
setting up a local network of sales agents. The idea behind having agents is to make it easier to reach
local Tanzanians, and to enhance their trust for e-commerce in general and for Atsoko in particular.
The sales agents will also fill an educating function, since most Tanzanian consumers still feel
insecure when it comes to online shopping. Currently, Atsokos webpage only exists in English.

Atsokos business idea is to offer consumers the possibility to buy basically any product that is
available to buy from western e-retailers
26
. The consumer uses Atsokos webpage to order goods
from various trusted e-commerce web pages. When a product is ordered, it is first delivered to
Sweden, then re-packed and sent to the Atsoko office in Dar es Salaam. Atsoko stands for the risk
during shipment and through customs, and the ambition is to offer the customer a hassle free way of
ordering products from Europe. Atsoko only sells imported items, and they do not have any physical
stores. The prices are about 100 % higher than original retailer prices, consisting of margins,
shipment fare, insurance, VAT and import duties.

Atsokos target customers are well off, English speaking Tanzanians and the expatriate community.
So far Atsoko only targets customers in Dar es Salaam. Consumers have so far demanded a wide
range of products, but electronics and clothes are most popular. Atsoko has not made any big

25
Since the CEO is not a Tanzanian citizen
26
Exceptions are make-up, food and a few other products that demand special product licenses.
24
advertising campaigns; the marketing so far has consisted of face to face marketing at a shopping
mall, a print ad in a classifieds magazine and banner advertising at local blogs.

In the time of writing, Atsoko sends one shipment every month with DHL from Sweden to Tanzania.
This means that the waiting time for the consumer from order to delivery is from two to six weeks. If
business continues as planned, the delivery time will be reduced as the number of customers
increase. Products ordered through Atsoko are normally picked up by the customer at the companys
local Dar es Salaam office.

Customers can pay for Atsokos services either in cash or by bank transfer. There have been internal
discussions about launching VISA payments and mobile payments, but the demand for these services
do not seem high enough to motivate the extra cost. Customers have to pay the total cost for the
product before Atsoko makes the final order.

Atsokos CEO has faced several difficulties in starting up the business in Dar es Salaam. She has had
problems with both getting a business license and with setting up a company bank account.
According to her experiences, both complicated bureaucracy and corruption are big problems for
start-ups in Tanzania.

8.2 Kivuko
The founder of this company has the ambition to give consumers the possibility to buy products of
high quality that are hard to find on the local market. He started to develop the venture about two
years ago, and the web page has now been up and running for about one year.

The company currently has five employees, and they manage everything in-house, including the
coding of the page. The founder of Kivuko has invested his own, personal capital in the business. He
has not really tried to get any external investors, but he thinks this would be really difficult. He says
that it is hard for small companies even to get bank loans.

Kivukos business model differs somewhat from Atsokos. The company sells imported items from
the US, the UK and China as well as locally produced items. The founder of Kivuko early identified
that there were many skilled artisans and artists throughout the country who did not reach out with
their products. He then created a so called vendors programme that enables a buyer in for
example Dar es Salaam to buy items from a small producer in the countryside. Kivuko functions as a
middle-man in forwarding the order, but the local producer is responsible for managing the delivery
25
and the payment. The delivery time for the products bought through the vendors programme is
usually quite short, usually from a day to a week.

When it comes to imported items, Kivuko offers the customer to shop from a wide range of
categories, but with rather few products in each category. The most demanded products are
electronics and beauty products for women. They have a deal with some of the suppliers that all
products sold at the page should be in stock at the suppliers. This minimizes customer waiting time
and the administration cost for Kivuko. The delivery time for imported items is usually five working
days to Dar es Salaam and then another few days if the customer lives somewhere else in the
country. Products ordered from Kivuko are delivered all the way to the customers door. Price levels
on imported items are about 100 % higher than original retailer prices, consisting of margins,
shipment fare, insurance, VAT and import duties. The founder of Kivuko says that their current
margins are very low, but that their focus right now is on building a solid foundation of satisfied
customers rather than making a profit.

Kivuko has three main target customer groups. First of all it is the expatriates, this group has money
but they do not know where to find products to buy. This is also the group that Kivuko has the
hardest time to reach. The second group is local business people. They have money and work a lot,
so they appreciate the convenience of ordering products online. The third target group is students.
This group is rather price sensitive, but they are more skilled in using the Internet then older
generations. Their price sensitivity also works as an incentive for them to spend time browsing
different products on the web and compare prices. Today, Kivuko only has an English version of the
webpage. The most frequently used payment method is bank transfer followed by M-PESA.

There are five million internet users in TZ, all of them are potential customers Mr Amiri, founder of
Kivuko.

Kivuko has basically not made any marketing efforts; they do not want to grow too fast but rather
have a fairly small but really satisfied group of customers. They have invested a lot in having an
extensive customer support; there is a customer support online chat, support over the phone and via
e-mail. Since a lot of Kivukos customers are unused Internet users, this kind of extensive customer
support is fundamental to lower their perceived risk and strengthen their feeling of trust towards the
service.

26
The founder of Kivuko does not really identify any serious competitors on the current market for e-
commerce. He does not think that there are any other local e-retailers who manage to have the same
customer focus and make the buying process as pleasant as they do.

8.3 Leteonline
Leteonlines webpage was launched during the spring of 2010, but the founder started working on
the idea about one year earlier. The concept of Leteonline is to simplify the everyday life of
customers all over Tanzania. The traffic and the infrastructure are really bad, and the consumer
never knows if he or she is going to find the demanded product when going to a store. In the time for
the interview, six people were working for Leteonline and they were looking to employ one more.

Leteonlines assortment is wide and consists of everything from restaurant take-away to groceries,
fresh flowers, books, travel tickets and electronics. Among Leteonlines most demanded products are
restaurant meals and electronics. The imported items mainly come from Kenya and Dubai. Price
levels on imported items are about 100 % higher than original retailer prices, consisting of margins,
shipment fare, insurance, VAT and import duties. The owner of Leteonline also owns physical stores
and he plans to open up more branches, and he claims that the physical stores give better margins
since he buys in bulk. In the future, he has the ambition to offer all kinds of products to the
consumers, from auto spare parts, to cashew nuts to computers.

Leteonline does not have an expressed target group. They want to reach all kind of people from all
over Tanzania. Most of the firms current customers are expatriates, probably because it is harder for
them than for the local Tanzanians to shop on the local market. Students use the site for research
and to browse for products, but they rarely buy things. The webpage is only available in an English
version.

One of the main challenges in the business identified by Leteonline is to build trust. There is a
customer group in Tanzania that has financial means and an interest to shop, but they are so used to
having face-to-face contact with the sales person that they sometimes hesitate to buy things over
the Internet. To counteract this, Leteonline has put a lot of effort in creating a professional customer
support.

Cash upon delivery is the most popular payment method among customers. Visa cards and credit
cards are very rare in Tanzania, and Leteonline has hesitated to introduce them as payment methods
due to the low interest among consumers and the high fees charged by the card companies. Mobile
27
payments like M-PESA get increasingly popular in Tanzania, but just as the card companies the
mobile phone operators charge a fee for every transaction. Currently, Leteonline does not think it is
worth to provide this payment method since it cuts the companys margins.

The founder of Leteonline used his own capital to start up his business. He says that no matter how
good your idea is, it is hard to start up your own business in Tanzania if you do not have personal
savings to use as start capital. It is hard to get bank loans, and practically impossible to get investor
money. Another difficulty that the founder of Leteonline has experienced in being an entrepreneur in
Tanzania is the extensive bureaucracy and corruption. It is not unusual that you have to bribe
someone to get the right papers or to get imported products out of customs.

8.4 Clarification of the used business model

The business model used by the three interviewed companies is a form of middle-man service, and
all businesses import directly and do not have products in stock. In the eyes of the suppliers, all three
e-commerce businesses are as any consumer. The exception is Kivuko, which with some suppliers
have a stock guarantee agreement. Otherwise, the businesses do not have any official agreements
with the suppliers, and since they buy single items rather than in stock, the relationship is not a
classic supplier-buyer relationship.

9. Consumers buying patterns and attitude towards e-commerce

To make it easy and logic for the reader to understand the focus group and interview findings we
have chosen to follow the structure of the manuscript that we used when conducting the focus
groups and interviews
27
. The manuscript starts out with questions concerning the participants
Internet usage and habits. These are followed by questions product categories the consumers are
missing at the existing market in Dar es Salaam today, their price sensitiveness and their preferences
for payment method and delivery.
9.1 How do you use Internet today? In what extent are you familiar with Internet shopping?
In general, expatriates had a greater Internet experience compared to the local Tanzanians. The
expatriates use Internet both at home and at their workplace. E-mailing, using social networks,
reading newspaper and watching TV were among the most popular areas of usage. Local Tanzanians

27
Can be found in its whole in the appendix
28
mostly use Internet for communication means (e-mail, Facebook etc). The local business men and
women use Internet for work.

There are big differences regarding online shopping behavior among the participants. The expatriates
are familiar with online shopping in their home countries. The most popular products to buy on the
Internet were contact lenses, tickets
28
, music and clothes. None of the expatriates participating in the
focus groups had been shopping online after moving to Tanzania. The main reasons were technical
limitations such as power cuts and slow Internet speed. The expatriates working for the embassy can
get product from their home country every week with the embassy post.
The local focus group participants earlier experience of online shopping is limited. The main reasons
were technical limitation as mentioned above and lack of trust in companies, especially when it
comes to the delivery and the payment processes. There were though a small group of early adapters
among the participants who had bought a few things from [Link] and similar web pages. The
majority of the early adapters were business men or women who had good Internet access at their
work place. For the local students, the cost of Internet is so high that browsing around the web to
look at products does not really appeal to them.
9.2 What keywords would you use when searching for a specific product to buy online?
During the focus group discussions, participants expressed that if they were searching for an item to
buy online they would use products as keywords, eg. TV Tanzania. Very few clicked first in to for
example Leteonline and searched for the TV there.
9.3 What are the pros and cons with Internet shopping?
When we asked this question to locals without previous experience from online shopping, we asked
them to imagine possible pros and cons. Not surprisingly, expats could think of more pros and cons,
since they have more experience from e-shopping. Most expatriates had not tried to buy anything on
the Internet in Tanzania, and the pros and cons discussed by them are applicable to the conditions in
their home countries.
The majority of the respondents considered the price level online as lower than in physical stores.
Internet gives access to a larger assortment and it is to compare prices. Online shopping is perceived
as convenient when you know exactly what product, model and size you want. Payment is fast and it

28
Transport and for entertainment
29
is no need to queue. It is seen as a quality proof to buy products straight from abroad, since product
sold on the local market often are fake or have been used before.
Perceived cons with online shopping include: late delivery (e-shops do not hold their promised
delivery time), risk of getting the wrong size (clothes and shoes), and that it is hard to know what size
you are. To return products bought online is considered a big hassle. At some web pages the payment
process is complicated and insecure. When browsing products from Tanzania, some web pages are
too technically advanced for the low speed Internet connection, which results in long waiting when
buffering the page. Many participants considered it a con that online shopping did not give a real
shopping experience, since it is not possible to feel, smell and try on a product.
9.4 Demanded products and price levels
9.4.1 Shoes and clothes
Expatriates think that the suggested price levels are decent on low and medium end brands, but that
the high end brands are too expensive. The respondents do not want to spend a lot of money on
clothes since they wear them out fast in Dar es Salaam (because of sweat, sun bleaching etc). They
would rather buy clothes and shoes from cheaper brands that they are familiar with e.g. H&M, Zara
and Converse.
Locals are satisfied with the range of products they can purchase at the local market. They are not
interested in buying high end brands online, these kinds of products are possible to find at the
second hand market.
Neither expats nor locals are interested in buying underwear online. The main reason behind this is
that they want to be able to try them on first.
9.4.2 Sport and kids articles
Basic sportswear and sport articles (football or running shoes, tennis racket etc.) can easily be found
on the local market, but they are either fake, bad quality or overpriced. Expats are willing to
purchase sports bras, running pants, swimwear and real-brand sports equipment such as tennis
rackets and golf equipment online. We could also see a high demand in more specialized products
that are hard to find in Dar es Salaam, such as sailing gear, scuba diving gear, kite surfing and trekking
gear.
Children clothes and toys are highly demanded. The reason behind this is the limited local
assortment, overprices and bad quality. Participants think that children items are suitable for e-
30
shopping since there is a low risk involved when it comes to sizes and fitting. They are also interested
in buying items that they cant find here, like DVDs and books in their childrens mother tongue.
9.4.3 Electronics and books
The majority of the respondents considered digital cameras and printers suitable items to buy online.
The demand is high since there are a lot of fake versions on the local market. TVs are not interesting
since they are possible to buy on the local market.
E-books, mobile phones and laptops are possible to buy at the local market. The assortment is really
limited though, and it is hard to get the latest models. This product category is one of the few where
respondents actually considered the suggested price level as reasonable. The high quality demands
increases the respondents willingness to pay for these product category
Respondents are not very interested in buying paperback books. There are a few local English book
stores, and their assortment seems to satisfy most people. Expats also describe how they borrow
books from each other, and how friends who are visiting are leaving books when they go home.
Local respondents consider electronic products easy to find on the second hand market, though they
see a problem with the difficulty to get warranties and the uncertainty of the quality.
9.4.4 Do-it-yourself-products, furniture and kitchen supplies
Neither expats nor locals think that do-it-yourself products and tools are interesting to buy online.
Kitchen supplies such as knives and sauce pans are more interesting to expats than to locals. The
respondent who were not interested motivated this by that they had a maid who cooked for them,
that they ate out most of the time or that they were simply not interested in cooking and had
therefore not paid much attention to the quality of their current applies.
The respondents are not interested in buying big, bulky furniture such as beds, sofas and big tables.
Expats usually bring this furniture in containers when they move to Tanzania and the locals are
satisfied with the local assortment. Expats have expressed a demand for smaller furniture, such as
sideboards, lamps and wine racks. Lamps that suits western style are apparently difficult to find on
the local market.



31
9.5 Do you miss any other products on the local market in Dar es Salaam today?

We asked this question since we did not want to miss out on any demanded product category. Both
the expat and the local participants missed diapers and beauty products
29
. Diapers are supplied in
the local market, but to a very high price. The local supply of beauty products is very limited and not
updated.
9.6 How do you want to pay for the product you order online?

Expats prefer to pay with credit card, even though they know there is a limited amount or companies
in Tanzania that accept this. Their second choice is bank transfer and last cash payment. Most locals
prefer paying in cash, many of them have not access to a credit card. M-PESA and bank transfer are
their second choice. All participants think that advance payment is okay, as long as they get a
receipt/guarantee. All respondents have access to cash cards, very few locals had access to debit or
credit card.

9.7 What about delivery time? Lead time? Delivery process?
The respondents want to have their ordered products delivered as fast as possible. They think that a
delivery time of two to four weeks is acceptable. Some of the participants are willing to pay more for
an express delivery.
9.8 Summary of focus group and interview findings
The most demanded product categories for both expats and locals to buy online are: technical goods,
children items, beauty products, sport equipment and sport clothes. There are some differences in
the demand. Locals have a higher demand than expats on imported furniture, while expats are more
willing to buy kitchen equipment from abroad. The price sensitivity is relatively high among the
expats and the locals. The expats expresses that even though they have the ability to pay, they are
not willing to pay more than the price level in their home countries. Locals expressed that their price
sensitivity is not unique for online shopping, it is applicable for consuming habits in large. This since
they experience that the high increase of inflation has not been followed by a increase in their
wages.

29
Cosmetics, fragrance and skin care.
32
10. Analysis
To analyze the attractiveness of the market for B2C e-
commerce in Dar es Salaam we have created a framework
that originates from M.E. Porters model of competitive
industry structure. The Porter model consists of five forces
that determine the intensity of competitiveness on a market,
and therefore the attractiveness. To adapt the model to suit
the immature industry of e-commerce in Dar es Salaam we
have slightly changed the content in some of the forces and
added a sixth force; market readiness.
10.1 Intensity of rivalry
10.1.1 Structure of competition and costs
The market for e-commerce in Tanzania is fragmented today in the aspect that there are few sellers
and many potential buyers. The fragmentation reduces the intensity of rivalry and makes it easier for
new competitors to enter the market.
Industries with high fixed costs encourage price-cutting and raise the intensity of rivalry. The fixed
costs to start up e-commerce business in Dar es Salaam today are relatively low. The highest costs
are variable costs, such as costs of wages. Low fixed costs and no need of stock reduces the intensity
of rivalry on the market, and hence increases the attractiveness for new companies to enter the B2C
e-commerce market in Dar es Salaam.
10.1.2 Degree of differentiation among the existing companies
Commodity products encourage rivalry, while highly differentiated products that are hard to copy are
associated with less intense rivalry. The three interviewed companies sell products of low
differentiation. This increases the level of rivalry and decreases the attractiveness for new companies
to enter the market.
10.1.3 Costs for potential customers when switching from one e-commerce distributor
to another
The e-commerce market in Dar es Salaam is young and the awareness among the customers about
the existing local e-commerce businesses is low. Customers do not care from which e-retailer they
purchase a product; the important is the products features. The switching costs to change from one
e-commerce distributor to another are very low today, which increases rivalry and hence decreases
33
the attractiveness of being on the market. On the other hand it raises the level of attractiveness for
new companies to enter the market, since low consumer switching costs also lower the brand
loyalty.
10.2 Barriers to entry
New entrants can raise the level of competition in an industry, and thereby reduce its attractiveness.
10.2.1 Economies of scale for existing companies
The market for B2C e-commerce in Tanzania is still in an early growing phase. This and the fact that
the interviewed companies have a middle-man business model makes the market conditions
somewhat different than on more established e-commerce markets.
Economies of scale certainly exist in the e-commerce business as a whole, where the retailer can
reduce everything from procurement costs to inventory expenses when volumes increase. The
importance thus decreases dramatically for the e-commerce businesses in Dar es Salaam, since them
with their current business models strive after serving each customers individual need rather than
buying in bulk.
You can almost say that the interviewed e-commerce companies do a conscious choice not to take
advantage of economies of scale, and therefore they do not make up a barrier to entry. In a long
term perspective, when the companies will niche their assortments and sell larger volumes, the
importance of economies of scale will evidently increase.
The current low economies of scale decrease the barriers to entry and hence increase the
attractiveness for new entrants to establish their businesses on the market. It though lowers the
attractiveness of the middle-man business model, and the attractiveness for the e-commerce as it
looks today in Dar es Salaam.
10.2.2 Capital requirements and access to financing
The capital requirement for starting up middle-man e-commerce business is fairly low. Basically, the
only thing that needs financing is setting up a web page and getting business a license.
The low capital requirements do not constitute a barrier to entry and hence increase the
attractiveness of entering the market. The difficulties to get financing, on the other hand, do create
barriers to entry. The founders of the interviewed companies had all invested their own private
34
savings, and the thought of getting external investors seemed very distant to them
30
. In addition to
the difficulties of getting venture capital, it is also very hard to get bank loans, and in some cases
even to set up a bank account.
The difficulties in finding venture capital and getting bank loans drastically limits the number of
entrepreneurs who have the possibility to set up their own business. For industry actors with access
to capital though, this decreases the number of competitors and hence increases the attractiveness
of being an entrepreneur.
10.2.3 Government policy, bureaucracy and corruption
A factor that constitutes a barrier to entry is the hassle to start up a business and to get all necessary
documents in order. As said earlier, it takes substantially longer time to set up a company in Tanzania
than in most OECD-countries. When the company finally is registered, there is a steady stream of
documents and applications to fill in. The governmental functions are not just inefficient, there is also
widespread corruption. This certainly contributes to the hardships of being an entrepreneur in
Tanzania, and the founders of all the interviewed businesses witnessed that they had had to deal
with corruption at some stage.

The bureaucratic hassle together with the level of corruption means that you as an entrepreneur
need to be persistent to get your company established and up running. The level of bureaucracy and
corruption constitute a barrier to entry the market, and decreases the attractiveness of the market in
large.
10.2.4 Brand identity
The three interviewed companies all have quite a low level of awareness regarding the direct
competition, and they more or less all considered themselves as the only serious business on the
market. The same applied to the potential customers that we met with in the focus groups. Even
though they constituted these companies target customers, most of them had not even heard of the
companies. A few of them recognized the name of the companies, but they had not bought anything
from them before. This shows how low the established companies brand identities are. Since the
target customers are unaware of the established companies existence, they have no lead start
compared to new companies. The low brand identities do not constitute a barrier to entry, and
increase the attractiveness of the market for new entrants.

30
The exception was the founder of Atsoko, who on the other hand had tried to get European investors, not
Tanzanian.
35
10.2.5 First mover advantage
If there is an advantage of being first at the market, this will make it harder for new entrants to
perform in the market and the attractiveness to enter will be decreased.
Leteonline, Kivuko and Atsoko all started up their business during 2010 and the beginning of 2011
and do not identify each other as threats. Due to that the market still is in such an early phase, it is
hard to determine if the existing companies have any advantage of being first. The low brand identity
shows that none of the existing companies so far have succeeded to become part of the potential
consumers top-of-mind awareness.
The interviewed companies face a big challenge in educating the potential customers in the
advantages of e-commerce and in making them include online shopping in their current cognitive
mindset. The customers ignorance and their lack of trust in making business without face-to-face
contact give the existing companies more of a first mover disadvantage than an advantage. The lack
of first mover advantages increases attractiveness for new companies to enter the market.
10.3 The bargaining power of suppliers
High bargaining power of suppliers will decrease the market attractiveness for new entrepreneurs to
enter the market.
10.3.1 The middle-man business model changes the classical seller buyer relationship
Since the three interviewed companies use the earlier described middle-man business model, and do
not have products in stock they are as any consumer in the eyes of the suppliers. This makes it a bit
complicated to analyze the bargaining power of suppliers. Is it even fair to treat suppliers as suppliers
if they themselves are not aware of that they are suppliers? In addition, the Tanzanian e-commerce
businesses currently places very small orders, so for most suppliers losing them would probably not
have any bigger effect on their business than losing a couple of ordinary consumers.

10.3.2 Undifferentiated assortment decreases the suppliers bargaining power

The e-retailers sell unspecialized customer goods, and hence they can choose from a large number of
suppliers. Since the range of western brands represented in physical stores in Dar es Salaam is rather
limited, so is the brand awareness among customers. This decreases the suppliers bargaining power.
The low bargaining power of suppliers increases the attractiveness of the market for new entrants.
Something else that increases the attractiveness for new entrants is the fact that the existing
36
companies do not have established relations with suppliers. This means that the existing companies
have no lead start in this area.

10.3.3 Threat of suppliers forward integration in the supply chain

The threat of forward integration depends on who you see as the industries suppliers. Since the e-
commerce companies use a middle-man business model, the suppliers are retailers themselves. A
majority of them have already integrated forward into the industry of e-commerce. As long as the
studied companies business models look the way they do, and the companies act as end customers
and buy from retailers rather than producers, this is inevitable. Hence, the current suppliers have not
yet entered the Tanzanian market, and it is not very likely that they will in the near future.

If the e-commerce businesses in Dar es Salaam grow, they are probably going to start purchasing in
bulk from wholesalers or straight from the producers. Then the threat of forward integration will
decrease significantly, since producers of consumer goods very rarely start selling their products
straight to consumers over the Internet. The low threat of forward integration increases the market
attractiveness for new entrants.

10.4 Consumers substitution of current shopping behavior
The presence of substitutes can lower industry attractiveness and the profitability in the market.
10.4.1 Consumers willingness to substitute their current shopping habits to e-
commerce
Today most people in Dar es Salaam go to the local market to buy the products they need. The
expats are either not aware of the existing possibilities to shop online or they do not find the
solutions attractive enough to be willing to substitute their current shopping habits to online
shopping. Among the local Tanzanians, their willingness to substitute their current buying habits is a
bit different from the expats. The rich and well-educated locals who are used to travel abroad are in
general more aware of the limitations of the supply of products in Dar es Salaam. They are also more
used to use the Internet as a tool in their everyday life. Their lifestyle increases their willingness to
substitute the local market shopping with online shopping.
A majority of the interviewed consumers agreed on that they are willing to substitute the local
marketplace for e-commerce when it comes to buying technical products. This is motivated by that
37
the local market is crowded with copies and the willingness to buy real-branded technical items is
high.
The overall low willingness to substitute physical shopping with online shopping for the potential
customers in Dar es Salaam today lowers the attractiveness of the market place.
10.4.2 The consumers cost of switching to online shopping
Shopping in physical stores gives the customer a possibility to feel, smell and try the products they
are planning to buy. This is something that is hard to recreate at the online market, and has been
mentioned as a switching cost by the customers in the focus groups. Another cost of switching from
physical to online shopping in Dar es Salaam is the social or cognitive barriers. The lack of trust in
buying from someone you cannot have a personal relationship with is a big issue for many of the
locals in the focus groups.

As mentioned before, the limited usage of credit cards and big reliability to pay in cash to a person
you can meet face-to-face decreases the consumers willingness to substitute shopping in physical
stores with shopping online. A summary of the discussion in the focus groups is that the
psychological distance to online shopping is large for most locals in Dar es Salaam and they do not
have online shopping in their cognitive shopping behaviour today and see therefore the risk of
shopping online as a huge switching cost.
What raise the risk of customers not to substitute physical shopping with online shopping are the
social and cognitive barriers together with the technical limitations and ignorance when it comes to
Internet and online shopping. Therefore it is logical to estimate that as time goes by, with larger
internationalisation and development to an online society world the adoption of online shopping in
Tanzania will raise and the treat of substitutes will decrease.
10.5 The risk of consumer disintermediation
The ability for disintermediation is large in the e-commerce industry. For the consumers in Dar es
Salaam it is relatively easy to order directly from the retailer
31
to a relative or friend living abroad and
then get the goods sent down to Tanzania, instead of going through the middle-man agent.
This increases the pressure on the middle-men e-commerce companies to give the customers so
many added values that they are willing to pay a superior price for the service. High risk for

31
E.g. H&M and IKEA
38
disintermediation decreases the power of firms in the market, and hence decreases the market
attractiveness.
10.6 Market readiness
10.6.1 Estimated market size
There is no exact number of the size of the market for B2C e-commerce in Dar es Salaam. For a
consumer to at all be able to shop from the existing online stores, a decent level of English is
required. In 2003, 9.89 % of the Tanzanians were labelled as English speaking (Chrystal). This reduces
the nationwide customer base from about 42,750,000 people to 4,228,000 people. This limitation of
the market can easily be overcome by offering the e-commerce service in Kiswahili. What is harder
for the e-commerce companies to affect though is the lack of computers and Internet access. In
2009, only 1.6 % of the population used the Internet. This number has of course increased during
2010, but used as an estimate it reduces the population of about 42,750,000 people to an elite
customer base of about 680,000 people.
10.6.2 Consumer readiness

[Link] Trust issues

In Tanzania, consumers prefer face-to-face communication and many find it hard to trust online
shopping, which is perceived as anonymous and insecure. The trust issue is a big obstacle that needs
to be handled by the e-commerce businesses in Dar es Salaam. With the current volumes, the e-
retailers can handle physical payments by cash, but if volumes grow as expected this will create big
logistic challenges and costs. In addition to costs of handling payments, the e-commerce businesses
currently put a lot of resources on extensive customer support. The lack of customer readiness in this
area decreases the attractiveness of entering the market.

[Link] Computer and language knowledge

Even though there is a community of middle and upper class households in Tanzania with access to
computers and Internet, this does not ensure that they are able to take advantage of the benefits of
e-commerce. Lack of English and computer knowledge can widely limit what type of Internet based
services a consumer can take part of. English is still the lingua franca of the ICT community (Dutta, S
and Mia, I. 2011), and this is valid also for the e-commerce businesses in Tanzania. There is a
relationship between Internet usage and the capability in English language, for example in Slovenia
39
75 % of the population who are fluent English speakers use the Internet, compared to 1 % of non-
English speakers (Kshetri,N. 2007).

The companies that we met with had all chosen to have web pages in English, even though Kiswahili
is the official language in Tanzania. Since the level of English is rather limited in Tanzania, even in the
middle class, the companies language policy hence excludes some potential customers. Since the
Tanzanian customers already find it hard to trust e-commerce, it is even more important that they
are able to fully understand the information given in the webpage. The fact that such a big part of
the population has low computer and language skills decreases the potential customer base and
hence decreases the attractiveness of the market.

[Link] Consumers willingness to pay
The e-commerce companies that we met with in Dar es Salaam all sold consumer goods to a
significantly higher price than equivalent products in the local market. The explanation to this was
that all items sold are original products, and that the quality is superior to locally produced products.
When discussing the price quality ratio with the local Tanzanians in the focus groups, it was far from
all consumers who agreed on that it was worth paying extra for a product of superior quality. The
Tanzanian consumers nationwide also get a low score when the level of buyer sophistication in the
country is measured
32
(UNESCO Institute for Statistics 2010). The focus on cost rather than quality
can partly be explained by that the growth level of wages has not kept up with the inflation. This was
a theme that respondent returned to several times during the focus group session. In addition to
salaries not keeping pace with inflation, the uneven distribution of income in the country decreases
the size of the customer base.

The bigger and more varied the supply of products get in Tanzania, the more consumers will start to
notice and appreciate different aspects of quality. This, in combination with a higher standard of
living and ability to pay, will probably lead to that Tanzanian customers in some years ahead will base
their buying decisions on other aspects than just price. Currently, it is though a challenge for the e-
commerce businesses to convince the customers that there is a value in paying a superior price for a
product of a specific brand or a certain origin.




32
2.88 on a scale from 1 to 7.
40
[Link] The price transparencys effect on the willingness to pay

Most of the expats in the focus groups demanded foreign products and had the ability to pay for
them. They were still reluctant to order them though, with the motivation that they knew that the
price level for the same product in their home country was much lower than at the e-commerce
businesses webpages. This reasoning can be explained by the theory about price transparency. If the
consumer knows exactly how big the sellers margin is, and perceive it as too high, this will reduce his
or her willingness to pay (Granados, N. et al 2004). In the example of one of the e-commerce
businesses, Atsoko, the consumer is linked to the original retailers web page to choose what
products to order, and hence gets immediate information on what the original price is. When
ordering from Atsokos web page, the consumer gets additional information on import duties and
VAT rates. This results in that the consumer easily can see how big Atsokos margin is. The price
transparencys effect on the consumers willingness to pay is something that the e-commerce
companies must take into consideration when deciding whether to continue with the middle man
business model.

10.6.3 Governmental readiness

[Link] Government e-participation

The Tanzanian government lies far behind many European governments when it comes to using ICTs
to simplify the daily life of the businesses and citizens. These numbers show that the Tanzanian
government has a long way to go before it fully grasps and take advantage of the possibilities of ICTs.
The governments lack of taking advantage of the digital technology complicates he daily business
procedures for entrepreneurs; hence it decreases the market attractiveness.

[Link] Level of taxation

The e-commerce companies that we interviewed in Dar es Salaam all agreed on that bureaucracy and
corruption constituted significantly higher barriers to their businesses than the level of taxation. The
total tax rate
33
measured in Tanzania is lower than the one in for example Sweden, and the level of
taxes measured impact on incentives to work or invest is equivalent to the world mean (Dutta, S and
Mia, I. 2011).

33
The sum of profit tax, labor tax and social contributions, property taxes, turnover taxes, and other taxes, as a
share (%) of commercial profits
41
The duty and tax rates do not constitute a severe hinder for the e-commerce businesses, and hence
do not decrease the attractiveness of entering the market.
Tanzania has to reduce further the cost of doing business to stimulate supply response at micro-
level Tanzania Investment Center
10.6.4 Infrastructure readiness

[Link] Access to Information and Communications Technology

The access to computers and Internet is limited in Tanzania, and those who have access are bothered
by slow connections or constant power cuts. The customer groups that we interviewed in the focus
groups all had access to Internets, but it is still long before the majority of the Tanzanians are
connected to the World Wide Web.

The lack of Internet access drastically limits the absolute number of potential customers, from the
around 42.7 million inhabitants to a small elite of 684,000 Internet users. The potential consumers
lacking access to Internet limits the customer group, and hence obviously decreases the
attractiveness of the market for e-commerce.

[Link] Lack of access to advanced payment methods

A factor that limits the attraction of e-commerce in the perspective of the potential customers is the
limited access to advanced payment methods. Today, most customers must visit a physical office
twice when ordering through the e-commerce businesses in Dar es Salaam. The first time is when
they want to confirm the order by paying for it in cash, and the second time is when they collect the
products that they have order. These procedures, especially in combination with bad infrastructure
and heavy traffic, constitute a big transaction cost for the consumers. It also removes one of the
biggest advantages with e-commerce, namely the convenience of getting your ordered products
straight to your door. The consumers lack of access to advanced payment methods decreases the
level of convenience they experience with e-commerce. This will in turn probably decrease their
interest, and hence the customer base. The consumers lack of access to advanced payment methods
therefore decreases the market attractiveness for new businesses.

42
[Link] Transportation infrastructure

As said before, Tanzania lies crucially behind when it comes to transportation infrastructure. Even
compared to other developing countries, their infrastructure is in a remarkably bad condition. This is
both a pro and a con for the e-commerce businesses in Dar es Salaam. It makes it harder for them to
expand their businesses and deliver their goods to customers in remote part of the country, but on
the other hand it limits the consumers possibility to travel and hence increases the attraction of e-
commerce.

11. Concluding discussion
When evaluating our research question How attractive is it for entrepreneurs to enter the B2C e-
commerce market in Dar es Salaam?, it is equally important to consider macro as mesa and micro
factors. Governments, businesses and individuals have a joint impact on the future of this industry.
11.1 How do the macro conditions affect the attractiveness of entering the B2C e-
commerce market in Dar es Salaam?
A macro condition that decreases the attractiveness of the e-commerce market for new entrants is
the difficulties of getting venture capital and bank loans. Further, the burden of bureaucracy and the
high level of corruption decrease the market attractiveness for as well existing companies as for new
entrants. The governments low ability to use digital resources to simplify the daily chores of
businesses creates extra work and hence decreases the attractiveness of entering the market.
The poorly developed infrastructure in Tanzania contributes to peoples limited access to information
and communication technologies. This in turn decreases the size of the potential customer base for
e-commerce, and hence has a negative effect on being an entrepreneur in the e-commerce sector.
The same thing applies when it comes to the Tanzanians limited access to advanced payment
methods, such as bank cards. This decreases the convenience that they potentially could experience
with shopping online, and hence decreases the number of interested customers. It also limits the
geographical catchment area, since most consumers today have to physically visit the companies
offices to pay in cash. The customers limited access to advanced payment methods hence decreases
the attractiveness of entering the e-commerce industry.

Something else that decreases the customer base is the poorly developed transportation
infrastructure. The bad conditions of the roads make it hard for the e-commerce businesses in Dar es
43
Salaam to deliver goods to customers outside the city area. This decreases the customer base and
hence lowers the attractiveness of entering the B2C e-commerce industry.

11.2 How do the industry settings affect the attractiveness of entering the B2C e-commerce
market in Dar es Salaam?
The middle-man business model used today eliminates the need for the e-commerce companies to
hold any products in stock or to invest in physical premises. This makes it easier for entrepreneurs to
enter the market, and increases the attractiveness of doing so. The consumers low awareness of the
existing e-commerce companies indicates an absence of first mover advantage, as does the fact that
the existing industry actors do not have any agreements or established relations with suppliers.
These factors further increase the attractiveness of entering the market.
Today, the studied companies all offer their customers a large range of products. In between them,
their assortments are though rather similar, and they are hence not differentiated from each other
on any higher level. In years ahead, the current industry actors will probably find their own separate
niches and hence become more differentiated. The current lack of differentiation in between the
companies suggests market immatureness, and that there is room for new entrants.
Economies of scale exist in the e-commerce industry, like in any other type of retail industry. The
established companies on the e-commerce market in Dar es Salaam have though so far not taken
advantage of economies of scale. This phenomenon does therefore not decrease the attractiveness
of entering the e-commerce market.
11.3 How do the characteristics of the potential customer segments affect the
attractiveness of entering the B2C e-commerce market in Dar es Salaam?
The consumers relatively low willingness to pay a premium price for the imported goods and their
low willingness to substitute shopping in physical stores with online shopping decreases the
attractiveness of entering the market. The consumers though have a slightly higher willingness to pay
for technical goods, and this creates a possible differentiation opportunity.
The consumers lack of trust in e-commerce and advanced payment methods force the e-commerce
businesses to put effort in building trust and educating the potential consumers. This takes a lot of
resources from the companies core business, and hence decreases the attractiveness of entering the
market. In a long term perspective, customers tendency to disintermediation reduces the
44
attractiveness of the middle man business and hence the attractiveness on entering the e-commerce
market on the same conditions as the existing companies.
The limited size of the potential market due to lacking computer and Internet access also decreases
the attractiveness of entering the market. As the access increases, so will the customer base and
hence the market attractiveness.
11.4 Overall conclusion
When assessing the attractiveness of entering the B2C e-commerce market in Dar es Salaam, the
conclusions differ depending on which of the three perspectives that is evaluated. In general, the
conditions on the macro level decrease the attractiveness of the market. Some of these conditions
will probably approve in just a few years, while others will take longer to change. On the meso level,
a lot of the described conditions are depending on the current middle-man business model.
Currently, this business model is used by all the companies in this study, but it is not obligatory. The
existing companies do not seem to have had any advantage of being pioneers in the market, and
hence do not have a lead start compared to new entrants. When it comes to the characteristics of
the potential customer segments, there are a lot of conditions that speak against entering the e-
commerce market. It is though important to keep in mind that these conditions are valid today and
with the speed of globalisation they will not look the same tomorrow.
After having evaluated the attractiveness of the e-commerce market in Dar es Salaam, the overall
conclusion is that the current macro conditions decrease the attractiveness, as do the characteristics
of the target customer segments. The intensity of rivalry on the market is low, and the established
companies do not have a lead start compared to new entrants. Given the current conditions on the
market, we would not advice an entrepreneur to enter the market. The attractiveness of entering the
market will, however, change as the mind-sets of the consumers and the technical infrastructure
develop.
12. Advice to entrepreneurs
Our conclusion from this study is that it is not attractive to enter the B2C e-commerce market in Dar
es Salaam during the current conditions.
If an entrepreneur still decides to enter the market, we would recommend niching the assortment to
imported technological products and paperback books. This is since the favorable tax conditions on
these items will allow the entrepreneur to obtain margins while offering the consumer a decent
price. These kinds of products are also highly demanded among the target customers.
45
If entering the market under the current conditions, an entrepreneur must also be prepared to put a
lot of effort and resources in educating potential consumers in how to use online shopping. Further
on, they must create an extensive customer support to decrease the consumers level of perceived
risk and anonymity when shopping online. The web page should not only be constructed in English. A
version in Kiswahili is important to enhance the feeling of trust to the companies.
An important long term mission for the existing companies will be to develop a business model that
gives them the opportunity to decrease their purchasing price, and hence to lower customer prices.
One way to manage this can be to cooperate directly with the retailers and to get the permission to
sell their products, another to sell products imported directly from the producer under an own
brand.
13. Limitations and suggestions for further research
We decided to use focus group as a research method since this is a good tool to get extensive insight
in the respondents opinions. A weakness with this method is though that the respondents can get
influenced by each other, and that this affects the quality of the findings.
Something else that can have affected the quality of the research is our own psychological distance
to some of the focus groups participants. We only spent five weeks in Dar es Salaam, and this
duration is too short to fully understand cultural patterns of a society.
Another factor that has constituted a difficulty has been to thoroughly assess the industry settings.
There is no available statistics on how many active e-commerce businesses there are on the market,
and the company representatives that we interviewed had a very limited knowledge about the
competition. The fact that the interviewed companies were founded relatively shortly before the
time for the study also contributed to that it was hard for them to describe what risks and
opportunities that existed in the market.






46
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R_Country=7620&BR_Region=40540 [accessed: 4 April 2011]
WBG,a 2011, International Finance Corporation, The World bank [online]. available:
[Link] [accessed:
7 May 2011]
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WBG,b 2011, International Finance Corporation, The World bank [online]. available:
[Link] [accessed: 7
May 2011]
Wikipedia (2011) [online] available: [Link] [accessed: 6 May 2011]
FOCUS GROUP PARICIPANTS
Focus Group 1, 2011-03-09: Anna, Erica, Karen, Allan, Fredrika
Focus Group 2, 2011-03-10: Adanna, Chinasa, Isingoma, Kamaria
Focus Group 3 2011-03-14: Roberto, Paulo, David, Sebastian
Focus Group 4 2011-03-17: Micke, Christian, Tommy, Niklas, Lars
Focus Group 5 2011-03-22: Maria, Mari, Mariette, Agneta, Camilla
Focus Group 6 2011-03-23: Abimbola, Chinwe, Ime, Jengo, Kato, Kojo
INTERVIEWS
Interview Atsoko, 2011-03-14 : Marie Engelsson
Interview Leteonline, 2011- 03-27: Mr. Kit
Interview Kivuko, 2011- 03-29: Mr. Amiri
Interview, 2011-03-30: Niyi Owolabi
Interview, 2011-04-02: Mr. Seifden
Interview, 2011-04-04: Godfrey Kamukala
Interview 2011-04-06: Mrs. Pussy
Interview 2011-04-06: Mrs. Rachel
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Appendix 1- Glossary

Asante Sana means thank you very much in Swahili

Atsoko means at the market (soko = market in Swahili)

B2B = Business-to-Business

B2C = Business-to-Consumer

E-commerce = Electronic commerce is the buying and selling of information, products and services
via Internet
Entrepreneur = A person that has possession of a new enterprise, venture or idea and is
accountable for the inherent risks and the outcome
Expatriate = A person who temporarily or permanently is living and working in a country and culture
other than his or her native country

Leteonline = Bring it online (lete = bring in Swahili)

Market = a variety of systems, institutions, procedures, social relations and infrastructures whereby
parties engage in exchange.

OECD-countries = The Organisation for Economic Co-operation and Development (OECD) is an
international economic organisation of 34 countries. It was founded in 1961 to stimulate economic
progress and world trade.

Pole Pole = General term used in Tanzania to encourage people to chill out

Sub- Saharan Africa African countries below the Saharan desert



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Appendix 2- Figures and Charts

Inflation Rate (Customer Prices) 2003-2011, Source:IndexMundi
Chart 1: Inflation Rate (Customer Prices) 2003-2011Tanzania


Chart 2: Inflation Rate (Customer Prices) 2003-2011 Sweden


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Chart 3: Inflation Rate (Customer Prices) 2003-2011 South Africa



Annual GPD Growth, 2003-2011 Source: IndexMundi

Chart 4: Annual GPD Growth, 2003-2011 Tanzania




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Chart 5: Annual GPD Growth, 2003-2011 Sweden




Chart 6: Annual GPD Growth, 2003-2011 South Africa




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Table 1 : Annual GPD Growth 2010

Annual GDP Growth 2010
Tanzania 6,10%
South Africa -1,80%
Sweden -5,40%
World (average) 4,22%
Africa (average) 4,86%
Sub Saharan Africa (average) 4,67%

Table 2 : Annual Inflation Rate (customer prices) 2010

Annual Inflation rate (customer prices) 2010
Tanzania 12,00%
South Africa 7,20%
Sweden -0,10%
World (average) 12,25%
Africa (average) 21,60%
Sub Saharan Africa (average) 23,21%


Appendix 3- Example on the Focus Group Exercise


54
Example on the Focus Group Exercise Example on the Focus Group Exercise

55

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Appendix 4 - Interview manuscript existing companies
How did you get the idea to start up an e-commerce business in Dar?

1. Explain your business model!
Do you buy your goods from local agents or do you import?
2. Demand from consumers
Did you do any research before starting up the business?
Who are your target customers?
Which items are the most demanded?
Are the customers willing to pay for the products, or have people complained
over the prices?
How long are your lead times? Is the customers willingness to wait different
depending on which product they have ordered?
Which is the most popular payment method among customers? Have you had
any technical problems with card payments and M-Pesa payments?
How many visitors do you have per month/day?
How is the ratio between visitors/purchases?
How much is the average purchase per client?
How is the customer loyalty? Returning clients?
3. Starting up a business in Dar
Did you meet any difficulties in getting a business license and bank account?
What other difficulties have you met? Corruption, bureaucracy etc?
Is it easy to get investors in Dar?
4. Logistics and delivery
Which company do you use for deliveries?
How has it been to work with them, have you been able to negotiate prices etc?
Where do you ship goods from?
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5. Customs, VAT, rules and regulations
Have you had any problems getting your products out of customs?
How does it work with product licenses for eg cosmetics and electronics?
Is there any product category that you want to sell but that you are restricted to
import because of regulations or other reasons?