Market Entry Strategy

Topics: South Africa, Food industry, Africa Pages: 14 (4450 words) Published: November 6, 2013
Table of Contents

Introduction2
Part 1: Porter’s National Diamond Analysis2
Factor Conditions2
Demand Conditions3
Related and Supporting Industries4
Firm Strategy, Structure and Rivalry5
External Variables6
Part 2: Contemporary Management Issues7
Part 3: Market Entry Strategy10
References12
Appendices17

Abstract
This report focuses on the competitive advantage of food industry of one of the fastest emerging economies of the world, South Africa. The report uses Porter’s National Diamond model’s attributes factor conditions, demand conditions, related and supporting industries and firms strategy, structure and rivalry and external variables to evaluate the competitive advantage of South African food industry. The analysis shows that the South Africa is self sufficient to meet its domestic food needs, has high domestic demand with increasing paying capacity, possess relatively well developed supporting industries and has high competition among the companies operating in the food industry. South Africa however lacks basic infrastructure, has a shortage of skilled workforce and has high unemployment and inflation rate. The Porter’s national model thus shows that the South African food industry does not have all the attributes to possess the competitive advantage in the food retail industry. However, the government’s plan to invest in infrastructure and related industries is expected to improve the situation in the next few years and thus could be a good option to enter the South African food retail industry. The report also evaluates the management issues that a foreign company could face while entering and operating in South Africa.

Introduction

South Africa (henceforth SA) is Africa’s biggest economy (Maylie, 2012) and is a part of BRICS (Brazil, Russia, India, China and South Africa) group that now accounts for the 28% of the world economy (BBC, 2012). This report will analyse one of SA’s fastest growing industry, food retail (USDA, 2010) using Porter’s National Diamond model. The report will look into the investment opportunity for a UK based retail group, named ABC plc here, and the issues the company could face while its operation in SA. Part 1: Porter’s National Diamond Analysis

The four attributes that constitute Porter’s diamond are factor conditions, demand conditions, related and supported industries and firm’s structure, strategy and rivalry. These attributes are discussed in the case of SA food retail industry as follows: Factor Conditions

Factor conditions are further divided into basic and advanced factors. Basic factors include natural resources like land, labour and capital SA possess to have a competitive advantage in the food retail industry.

Basic factors
I. Climate- SA has a diverse climate to support the growth of grains, fruits and vegetables. SA, thus, is self-sufficient in agriculture produce that make a considerable part of the retail industry (PMA, 2012). The country produced 5.5 million tons of fruits and around 4.5 million tons vegetables in 2011 sufficient to feed the domestic population (Appendix-3) (NAMC, 2012).

II. Labour market- According to a world bank report, the labour costs in SA are quite high compared to other emerging economies like Brazil, Argentina and Chile (Fin24, 2010). Although the country has good educational infrastructure (Appendix-1), SA labour market is characterised by a shortage of skilled labour and surplus unskilled labour. As a result of shortage of skilled workforce, the companies operating in the country will witness 75% increase of expatriate staff by 2015 (Araoz and Furphy, 2012) that could increase the cost of operations for the companies in SA.

Advanced factors
I. Infrastructural facilities- SA has very poor road and port infrastructure. The country is ranked 63 by a World Bank (2011) report of global competitiveness for infrastructure (Appendix-2). However, the SA government has set up a...

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South Africa: Key macroeconomic data
Source: Deloitte (2011)
Source: World Bank (2011)
APPPENDIX- 3
South Africa’s fruit and vegetable production 1981-2011
Source: NAMC (2012)
Source: African Economic Outlook (2012)
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