Business Expansion in South Africa

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Table of Contents

S.No.
1. 2.

Section
Country Profile Qualitative and Quantitative Data Economic Political Cultural Risks and Benefits

Page No.
2 4

3.

4.

Feasible options for Entry Functional Opportunities and Constraints

7 8

5.

6.

Ethical Considerations

7.

Reccomendation to Proceed
10

8.

Best Way to Implement Expansion

10

9.

References

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Country Profile South Africa

South Africa is today one of the most favourable and emerging market globally. The current collaboration of South Africa with the BRIC group of countries that is Brazil, Russia, India and China indicates towards the countrys move for progress and becoming the key voice internationally. South Africa has been the choice of the investors in the last decade because of the countrys commitment towards trade and the requirements in the business has been fulfilled completely in the past. South Africa is the livewire of the African continent as per being responsible for the 30% GDP itself of entire Africa, the GDP of South Africa is US$312bn which is about four times the other south African countries with about 40% of the industrial output and 45% of the mineral production, and almost half of the electricity production of Africa is done by South Africa. The secret behind the South Africas success is its macro economic stability which has supported the costs and expenditure on social services and at the same time has cut down the capital investment and the risks in investing and planning business in South Africa. The government has played the main role in attracting the prospective investors as by fulfilling their demands of trade and secured investment on the countrys resources. Also south Africa is well connected within the country and also internationally. Low Capital Investment South Africa has been the choice of the foreign investors because since a long time the country has holded the prices of the electricity in the country very as compared to the other emerging countries and developed nation, despite the fact that the need made south africa to boost up its electricity price hikes up to double but still the country has the cheapest source of energy in the world. The other attractive feature of investing in south africa is the cost of human resources and transportation and general living is very low as compared to other countries and also the tax rate in the corporate sector is generally deprived with time so as bring out south africa a powerful economy. Exports and Imports South Africa is most modern and connected trasportation lines in the Africa, which is very crucial in the transportation of goods, sources from neighbouring states and overseas, during the FIFA world cup 2010 the infrastructure of south africa has been moderated on a massive scale, and huge sum of money has put into the upgradation of the countrys transport links nationally and internationally. Natural Resources South Africa is the worlds second largest producer of gold counting after china and the largest in the platinum, about the 15% of the whole worlds gold is produced by South Africa and it is the home of the 40% known reserves in the world. In proportion of volume the country has the worlds sixth largest producer of diamond in the world. As far as the farming industry of South Africa is concerned the figures have been depressing in the past because where the countrys industry used to count total of the 30% GDP for the country is the now left 8% contributing in the countrys economy in the past five years.

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Some of the statisical facts of South Africa are: Country full name: Republilc of South Africa Population: Fifty Million ( According to UN 2011) Capitals: South Africa has three different sessional capitals they are:

Cape Town is the legislative capital Pretoria is the executive capital Bloemfontein Judicial Capital

Largest and most populated city: Johannesburg Area: 1.23m sq km Official Language: 11 languages are declared as the official languages English, Afrikaans, Sesotho, Setswana, xhosa and Zulu. Major Belifs: Christianity, Islam Monetary Unit: 1 Rand = 100 cents Major exports from the country: Diamond, gold, platinum, minerals, and metals. GNI per capita: US$ 6,090 as per World Bank, 2010. WWW top level domain: .za International telephonic dialing code: +27 (source: http://www.bbc.co.uk/news/world-africa-14094835 )

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Quantitative and Qualitative Data

Economic Status South africa is a fair and emerging market which is technoligically less developed but has rich supply of natural resources and well maintained energy, transport, legal and financial resources. South Africa counts to the 18th largest stock exchange market in the world. South africa is well equiped with the modern infrastructure and road and transportation system within the country and internationally contributing to the local and overseas exports and imports and the feature to attract the foriegn investors in the country. The rise of the south african market has been surprizing during the 2004 to 2007 but certainly after the the year 2007 the economy of south africa started to fall down as per with the global financial crisis and the shortage of the power supplies in the country. But the country started to recover in 2009 and by the end of 2011 South Africa has recovered completely from the financial crises. Poverty and unemployement has been the major constraints of the county in the past and is ongoing till now this problem has been continued since the era of apartheid. The government is strictly following the prudential policies but should rather be concerned about the increasing pressure and inflation in the interest groups which are utilized by the government in providing cheap services for improving the employement rate in the country. GDP in Purchasing power parity US$563 Billion in 2011. GDP official exchange rate - US$407.95 Billion in 2011 GDP Growth Rate 3% - 2011 GDP per capita PPP US$ 11,000 2011 Labour force 17.7 M - 2011 In occupation 10% agriculture 25% industry 65% services Unemployement Rate 25% - 2011 Population under poverty line more than 50% Inflation rate 5% National Bank discount rate 7% (source: https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html )

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Political Status South Africa is a republic which runs from parliament and is run by the president which serve as both the head of the state and of the government similar to the prime minister of our country India. The president of south africa is elected by the national assembly which is through the lower house of the members of parliament. African National Congress ANC has been the major ruling and dominating political party in south africa since the end of apartheid which is also winning with the majority of votes and huge gap in the political agendas, the african nationl congress rules in eight of the nine provinces in south africa and the winning margin of 65% clear cut votes in favour during the 2009 general elections, and during 2011 municipal elections. The other major political parties in the parliament of south africa is Inkatha freedom party and the Congress of the people counting for the zulu voters in the county. The power and role distribution of the county is like the executive power is managed by the central government, and the legistative power is divided between the two governments, the parliament assemblies, and the national assembly. The judiaciry power is free from the rest of the two powers. The election system of political leaders is similar to our country with being three tired as the representative being elected at the central, state, and the local district level. Cultural Status South Africa is very diverse county rich in culture and this is reson behind it been called as the rainbow nation of the world. Which means rich in cultural diversity. The population of the country counts to 41 million in total in which about 30 million of the inhabitants are black, 5 million white, 3 million indegenous coloured people and 1 million indians. South africa is very densely populated country being 33 people per sq km. The majority of the population of the country mostly the black population of the country has been classified in four major ethinic groups them being Nguni, Sotho, Shangaan-Tsonga and Venda. The biggest of the them all is the Nguni which is their oldest traditional ethinic and is further divided into two groups namely Zulu and Xhosa. About the white population of the country 60 % of them are the afrikaans and the rest of the 40% are the british decendands. The rest of the Indian population stays in the Kwazulu Natal the Indian desendants have been in the south africa since the time of the rule of the btitish government on both the countries and the labours were outsourced from India to other countries.

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Risks and Benefits of Investing in South Africa

Risks Inequality and the shortage of skilled labour: South Africa has the high rate of unemployement and the assive shortage in the skilled labour because of the poor rate of literacy level in the country the nation although has the high numbers of workers available at a very cheap price compared to any other country but the training of these workers with the technical systems is very expecsive for the investors and sometimes is difficult for them to enter the market. Human capital shortage: majority of the population of south africa is unemployed and skill less though a major part of the population in the country is struggling with the AIDS and so is unavailable for the human resources the rest of the population is uneducated as because of the apartheid education policy which stands as the main barrier behind the countrys development. Sensitivity to Raw material and goods prices: the prices of raw material and goods in south africa is very sensitive because of the ourlying geographical location of the country and it being deprived of rains and food some seasons and the price hikes of the local farming industry, therefore the prices of goods is dependent on the nature. Lack of transportation Infrastructure: The links of transportation within the country is very good as compared to the rest of countries in africa but as per the international market requirements it is still lagging behing as compared to the europian, asian countries. Shortage in energy production: The power generation of the country is good as per the general use but for the industrial purposes the countrys current power generation plants cannot satify the needs of the corporate sector and as a result the industries have to suffer a loss because of the power shortage and low supply in the country. 11% of the AIDS prevalence rate: South Africas 11% of the population counts to be suffering from HIV AIDS which is a contagious disesase as though decreasing the lobour amount and the poverty line of the country. This is the major constraint in the countries growth and development and government does not have any serious plans against the cause.

Benefits Abudant Range of Natural resources: South africa is the home of 41 natural reservoirs and is one of the largest producer of the metals including the platinum, gold and diamond, coal etc. And is also available in the country at a very low price becaue the country has a very nominal rate on the taxes and prices as the 50% of the countrys population falling below the poverty line. Generates 33% of the GDP for the Saharan African country: South africa alone counts to the 33% share in the annual GDP of Africa which is far more than any other individual countrys revenue generation for the africas. Page 7 of 12

Diversification in the Industry: The private and the tertiar sectors of the country like the banks, media and telecommunication of the country are diversified and a varied range is available in the country so as to choose the service from. Public sector fincances: The financing options are available to the natives of south africa from the private sector and finances are available to them for starting up the business, promoting a business, or expanding any business locally or nationally but only the government sector can finance the oversea business. Indebtness under control: Despite being a very poor nation and the dependent on other countries for the technological goods, services, engineering and medical facilities the republic of south africa is under a very good control of indebtness, the country individuals only utilize the sources as they can repay. Business Environment like the emerging countries: the republic of south africa has the potential to provide the investors from overseas an international standard of business environment. Also the african people learn very fast the traits of business and the decipline in the trade and foreign exchanges, that is the reason the country is the 18th biggest stock exchange market in the world. Economic and Political support: The government of South Africa is very lean towards the policies and rules for the foriegn investors in the country, and provides them with the every possible support for promoting their business in South Africa as the countrys profile is weak in the world for the technology, engineering and medical services. The investment of the foriegn traders in the country means the employement, literacy and free from poverty for the country, therefore the government has the rate of taxes very less than any other country and also the cost of power and parity is very low for the corporate sectors comparitively.

Feasable options for entry in South Africa

FDI Foreign Direct Investment South Africa was the very first country in the Africas which started the foreign direct investment FDI in the subsaharan region which was inclined to 25% in the year 2011 2012 World investment report UN conference on trade and development. There has been mass incrementation in investment in the FDIs in the south africa as the figures show also according to the press report published in Geneva, Switzerland highlightes that the flow of sub saharan africa increased from US$30 Billion touched in 2010 to US$ 36 Billion in the very next year 2011, FDI in south africa achived from US$ 1.23 billion in 2010 to US$ 5.80 Billion giving the title to south africa as the second largest FDI destination in the world behind Nigeria in the world.

(source: http://www.southafrica.info/business/investing/fdi-060712.htm#ixzz238wjHgJO)

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Franchising South Africa is the country which is most suitable and attractive for the business expansion through franchising as the country lacks in the technological specifications and engineering and medical requirements since the past and the franchising has been the most preferrable option for the entry in the south african corporate market. South African ensures that all of the parties adhere to the business of franchising keeping the brand value and respect of the image of the brand name as the main priority and to adopt and follow the traditions and procedures as international standard, franchising is considered as the most successful business formats in south africa. The franchise association of South Africa is the power holder and guiding force to the franchise business in south africa, FASA is responsible for the fair trade and the developments and achievements that the country has made in the business and industrial sector. FASA is behind the ethical trade in the south africa and is has made south africa as the most promising country for the franchising and making revenue from in the world.

Functional Opportunities and constraints

Human Resource Management The human resource management in south africa is generally done by the companies hiring the labour, the organisation with which the lobour is bonded takes the complete responsibility of the individual in south africa, the organisation will need to give the training for the work and spend money on his learning the basic knowledge required for the specific roles and tasks given. The international and the national companies in south africa have the authority to cancel the authorisation of any individual at any time without any prior warning as per the company policies and the government cannot bring the law obligations in between the labour and the organisation which rather depends on the type of business module the company is following in the country. Marketing The ethinity of south africa is very diverse with classifications in beliefs like the majority is owned by the christians and islam, on the basis of colour it is classified in blacks and the whites in which blackes are subdivided under four categories and the whites are only very less as compared to the blackes in south africa and moreover they are decendends of the british, therefore the business marketing of any product or serivces is done under the consideration to these peoples ethinity and backgroung knowledge as the people of south africa are ver sensetive towards spiritual and personal emotions, also the marketing in south africa has been put up under restriction under the government act of marketing, media and publication of 2011, and now the marketing on the public means is taxable at a high rate in south africa.

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Ethical considerations of Business in South Africa

Despite the most developed nation in the Africa south africa still lacks the international standardizaton and the rights of the workers at their respective work place also there are some factors or constraints which come across in the development and growth of south Africa which are: Corruption: This had been the problem of the country since the era of apartheid the higher officials of the country are exploiting the lower class families and the ancestor system is regulatory in any of the government or the private organisation, therefore the rich gets richer and the poor gets poorer in the country. Drugs : Regardless of the poverty in the country the nation is the home of the drugs and caffine, as the tobaco is very cheap in south africa there is a trend of getting used to drugs and other similar substances, therefore affecting the workforce of the country. Discrimination: there is still discrimination people and gender on the basis of the caste and religion in the country as there are already many classifications in the blacks and the whites in the country but the dividing of black community on the basis of caste have led the problem of discrimination and many of the feminists have turned to follow islam in the country. HIV: HIV AIDS is the major constraint of the countrys progress as there are about 11% of the total population is affected by the disease.

Recommendation To Proceed with the Expansion

Jindal Steel has good name in New Delhi and some metropolitan cities of India, the company has clients nationally and internationally, as South Africa is the home of the natural resources and the largest producers of metals including steel in the world it would be a great opportunity for the company to build a strong reputation within the country and overseas as having an international tie up of the company with any oversea company bringes a lot of importance to the companys reputation and market brand image and gives a chance to the company to highlight these achivements of the company to the client and marketing ona mass scale. Moreover expanding business to south africa will give company an opportunity to purchase the raw material at a cheaper rate and the cost of labour will also be less as compared to the other countries and to India, therefore the company will be getting opportunity to make high profits from all of the sides. The only problem that the company will need to face is the initial investment and the marketing capical investment that will be done in south africa, for the financial aid the company can approach the IDBI bank which is the industrial development bank of India which can provide loans to the company to start off its work.

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Best Way to implement the Expansion

Foriegn Direct Investment FDI is the best feasible way of expanding the business to South Africa which is the most popular methodology of any business expansion in south africa and the country provides the self aid and support for settling the company up in the country, also the FDI is the best way of expansion because the joint collaborations or ventures in south africa are very long and the compnay will then have to share its profit with the other company and also being a two party collaborative the tax prices will increase and the profit value of the company will decrease, therefore the revenue generation of the company is inversely proportional to the number of investors. FDI will increase the brand value of the company on the self basis and the company will then not have to add the name of any other south african steel brand for its advertisement.

Reference
Country profile, http://voicesofsouthafrica.com/why-invest.html, retrived on 3rd Aug, 2012. http://www.thedti.gov.za/trade_investment/why_invest_insa.jsp, retrived on 3rd Aug, 2012. http://www.bbc.co.uk/news/world-africa-14094835, retrived on 3rd Aug, 2012. http://www.startupoverseas.co.uk/expanding-a-business-in-south-africa retrived on 3rd Aug, 2012.

Economic status, https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html, retrived on 3rd Aug, 2012. Political status,http://globalministries.org/news/africa/analysis-of-the-south-african.html, retrived on 3rd Aug, 2012. Cultural status, http://www.exploresouthafrica.net/culture/, retrived on 3rd Aug, 2012. Risks and benefits,http://globaledge.msu.edu/Countries/South-Africa/risk, retrived on 3rd Aug, 2012. FDI, http://www.indexmundi.com/facts/south-africa/foreign-direct-investment, retrived on 3rd Aug, 2012. http://www.southafrica.info/business/investing/fdi-060712.htm#ixzz238wjHgJO, , retrived on 5th Aug, 2012.

Franchising, http://www.fasa.co.za/vision.php retrived on 5th Aug, 2012. HRM, Pieter A. Grobler, Surette Warnich (2006), Human Resource Management in South Africa, Thomas Learning, London, UK Marketing, http://www.southafrica.info/business/investing/open.htm , retrived on 5th Aug, 2012.

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Ethical considerations, http://www.busa.org.za/docs/BUSA_Charter_of_Ethical_Business_Practice.pdf retrived on 5th Aug, 2012.

Appendix A Jindal steel is the steel manufacturing company based with its head office in New Delhi, and the branch offices in the other metropolitan cities of India. Jindal Steel has a well maintained brand image nationally and with some international Asian clients fulfilling their demands with the best quality of Steel made from the steel plant in Bhilai, India which is the steel capital of the country and distribution points in the different parts of the country. The company is now planning the oversea expansion to South Africa so as to expand the business internationally and increase the revenue generation of the company and also to build a bigger steel supplier plant name in the world. Jindal steel has the plan to purchase a steel plant in south africa because of the cheap steel available in the country and the low costs of lobour and tax rates.

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