Stationaries in South Africa

7/31/2019 Stationaries in South Africa

1/15

STA

INTER

ION

ATIO

RIE

ALB

INSINES

OU

SAHAINIP

RAVEEN

RIC

OJEC

N.N. ABI

CHARLE

M. VINO

R.

ZA

ANYU

TON. J

RAJA

. RAM

EEN. R


2/15

1|P a g e

Table of Contents

EXECUTIVE SUMMARY .................................................................................................................... 2

1. INTRODUCTION .............................................................................................................................. 3

2. REASONS FOR INTERNATIONALIZATION ....................................... ......................................... 4

3. TRADE THEORIES ....................................... ........................................... ......................................... 5

4. PEST ANALYSIS .............................................................................................................................. 7

5. CULTURAL ELEMENTS ............................................................................................................... 10

6. MARKET ENTRY STRATEGIES .................................... ......................................... ..................... 11

7. CONCLUSION ........................................ ........................................... ........................................... ... 13

REFERENCES ..................................................................................................................................... 14

List of Figures

1. THE GRAPH DEPICTING USDZAR EXCHANGE RATES2. THE GRAPH DEPICTING THE GDP TREND OF SOUTH AFRICA3. THE GRAPH DEPICTING THE INFLATION RATE IN SOUTH AFRICA


3/15

2|P a g e

EXECUTIVE SUMMARY

On researching the different international markets of choice like the US, UK and

South Africa, the reason for choosing South Africa as the market of choice is because it is the

road less taken. South Africa is a growing economy with the rapid expansion of Africas

consumer class. From 2000 to 2010, GDP per capita of South Africa increased from $3,020to $7,275, representing a healthy 9.2 per cent compound annual growth rate. This is expected

to boost consumer spending by more than 60%.

The population growth of 2 per cent and continued urbanization will result in the

entry of around 221 million basic needs consumers in the African market by 2015, of which a

major portion would be in South Africa. (Research Monitor, 2012)

The demand for stationery in South Africa is high and many European and Middle

East companies are tapping the abundant market available. The stationery market in South

Africa is about 3.6% of the total retail value and is steadily growing at the rate of 9% everyyear. (Market Research.com, 2012)

On the other hand, ITC, with its GGSB segment is aiming to establish a 25% growth

against the 10-11% growth of the industry. Competition in the Indian stationery industry from

the unorganized sector constitutes 75% of the market, which is very high. Though ITC holds

only 12% of the market, it is the market leader.

The above growth figures are not conducive for ITCs strategy of 25% growth in the

industry. Thus, here comes the need for it to enter global markets of which UAE, Nepal,

Malaysia and China are already in the list. As the stationery market of South Africa is large,

it is estimated that the opportunity for ITC in the market is huge.

The Analysis of various factors for internalization is also discussed which is highly

favorable for ITCs success in the market with its renowned Marketing and distribution

strategies.


4/15

3|P a

1. IN

billion.

Packag

of note

student

2009 s

under t

Station

busines

premiu

launch

goersa

share i

product

1.1. IT

cities in

e

RODUC

ITC is one

ITC has a

ing, Agri-B

books und

population

w the laun

he 'Class

ry Produ

s paper un

executiv

d as a ne

nd Paperkr

terms of

s available

PRODU

ITC, throu

the countr

TION

of India's

diversified

usiness, an

r brand Pa

, the Class

h of Practi

ate' brand.

ts Busines

der the 'P

stationer

brand of

aft targeted

ards and 5

in over 70,

CTS AND

gh the Cla

y aroun

foremost p

presence i

Informati

erkraft in

mate rang

cal Books,

In 2008,

s and lau

perkraft'

and offic

art statione

towardsc

% in stati

00 outlets

BRANDS

smate Co

1.2 lakh s

rivate sect

n FMCG,

on Technol

2002. To a

of notebo

Drawing

ITC positi

ched Indi

rand. 'Pap

consuma

ry. Classm

llege stud

nary. Clas

in India an

nect progr

udents in 2

r compani

Hotels, Pa

ogy. ITC l

ugment its

oks was la

ooks, Geo

ned the b

's first en

rkraft' off

les segme

te brand a

nts and ex

mate has

also in U

amme, tar

011. (ITC

es with a t

erboards

unched lin

offering a

unched in

etry Boxe

siness as

vironment

rs a diver

t. In 2010,

ddressing t

cutives. I

00 distribu

E, China

eted 4,000

ortal, 201

urnover of

Specialty

of premiu

d to reach

2003. Yea

s, Pens and

the Educat

friendly

se portfoli

Colour C

he needs o

C already

tors who

nd Malays

schools a

).

US $ 7

Papers,

m range

a wider

s 2007-

Pencils

ion and

remium

in the

ew was

f school

as 20%

ake the

ia.

ross 15


5/15

4|P a g e

2. REASONS FOR INTERNATIONALIZATION

The annual consumer spend in the Greeting (Cards), Gifting and Stationery Business

(GGSB) segment is at around Rs 2,000 crores, recording a steady 9 per cent average growth

in the last three years. The company now aims to convert GGSB into a 500-crore business by

2010-11, with special thrust on notebooks and stationery products. As a part of this corporatestrategy and the urge to expand their market, the ITC GGSB segment has expanded to the

UAE, Malaysia and China. (ITC portal, 2012)

The 4000 crore Notebook business, ITC has heavy competitors; even though it is

leading the market followed by Navneet, 75% of the market is unorganized. So, looking into

these arenas ITC has heavy competition in the Indian Market and to reach its strategic target.

It has to work with its internationalization plans. South Africa has been chosen as the best

place for ITCs growth in the GGSB segment because of the high demand of stationery in

Africa. The books, news and stationery sector accounted for 3.6% of the total retail value in

South Africa in 2009. The sector has increased at a compound annual growth rate (CAGR) of8.6% between 2004 and 2009. The South African market is also highly welcoming the eco-

friendly papers from recyclable fibres and presently constitutes 50.8% of its total paper. (The

Economic Times, 2012)

The rapid expansion of Africas consumer class has resulted in many companies to

enter the region that many have avoided in the past. Consumer spending is expected to

increase by more than 60%. Thus, ITC has a good opportunity when it opens its stationery

market in South Africa. (Market Research.com, 2012)


6/15

5|P a g e

3. TRADE THEORIES

Analysis based on the Porters Four Diamonds Theory

South Africa enjoys certain competitive advantage which attracts the FMCG companies in

India to those markets. One way of analysing this competitive advantage is by using thePorters Four Diamond Theory. Porters Four Diamonds Theory shows that four conditions

are important for competitive superiority namely:

Demand Conditions Factor Conditions Related and Supporting Industries Firms Strategy, Structure and Rivalry

Demand Conditions

South Africa has a large consumer market which shows positive signs of strong

growth. South Africa's business opportunities are potentially very large, particularly for

companies in fast moving consumer goods industry. The consumer spending across the

continent has increased at a compound annual rate of 16 per cent. This is the driving force

that creates a huge demand for consumer goods in South Africa.

Factor Conditions

South Africas labour force is expanding at a considerable rate. The availability of

low cost labour is another factor that attracts the FMCG majors in India to invest in SouthAfrica. The political actions of the South African government are also being aimed at

creating a positive foreign investment environment.

Related and Supporting Industries

As the South African economy started growing, many multinational companies

started their operations there. This helped in creating a good distribution and logistics

network, throughout South Africa which could be leveraged by the FMCG companies. The

progress in the agricultural segment in the African countries provided support to the FMCG

companies in the form of raw materials.

Firm Strategy

The Indian FMCG companies which have invested in South Africa and other parts of

Africa have a stable business model. The expertise and skills of these companies in India

could be utilized to reap the business opportunities offered in South Africa. The strategy of


7/15

6|P a g e

these FMCG companies is to buy facilities in the African countries to serve as a regional

manufacturing base for selling its products in Europe, North America and Africa.


8/15

7|P a g e

4. PEST ANALYSIS

The PEST analysis of South Africa constitutes political, legal, economic, social,

cultural and technological aspects of doing business in the country.

Political & Legal Analysis

South Africa has a world-class, progressive legal framework. Legislation pertaining to

commerce, labour and maritime issues is well developed, while laws relating to competition

policy, copyright, patents, trademarks and disputes conform to international norms and

conventions. Sanctity of contract is protected under common law, and independent courts

ensure respect for commercial rights and obligations. The independence of the judiciary is

guaranteed by the Constitution.

South Africa's financial systems are sophisticated, robust and well regulated. South

African banking regulations rank with the best in the world, while the sector has long beenrated among the top 10 globally. Foreign banks are well represented and electronic banking

facilities are extensive, with internet banking a growth feature of the sector.

Economic Analysis

Since the advent of democracy in 1994, South Africa's economy has been undergoing

structural transformation, with the implementation of macro-economic policies aimed at

promoting domestic competitiveness, growth and employment and increasing the economy's

outward orientation. Taxes have been reduced, tariffs lowered, the fiscal deficit brought

under control, and exchange controls relaxed. South Africa's central bank, the SA ReserveBank, maintains its independence from the government. The Bank's programme of inflation

targeting has shown good results: the real interest rate has stabilized and the currency remains

at competitive levels. Consumer inflation came in at under 5% from 2004 through 2006

before global prices pushed it up to 6.5% in 2007. In 1994 it stood at 9.8%.

The government has made it clear that foreign investment is welcome in South Africa,

and investor-friendly policies support the public pronouncements. In 2005, the government

began formulating a new strategy to boost the country's economic growth rate to 6% of GDP

by 2014 and reduce unemployment. Implementation of the strategy involving large-scale

state investment in infrastructure, small business and skills development, and interventions

targeting specific areas of the economy is well under way.

The four major economic areas are: Cape Town, Port Elizabeth, Durban, and

Pretoria/Johannesburg. Their monetary note, Zar is the most actively traded emerging market

currency.


9/15

8|P a e


10/15

9|P a g e

Social & Cultural Analysis

With a growing population of 49,052,489 and eleven official languages among which

English dominates, South Africa has become an intensely divertive nation. The South African

black majority still has a substantial number of rural inhabitants with strong cultural values

who lead largely impoverished live. The blacks have become increasingly urbanized andwesternized while aspects of traditional culture have declined. Currently, South Africans are

worried about the future and their fear is fuelling a considerable change in their buying

habits.

ITCs mission is to enhance the wealth generating capability of the enterprise in a

globalizing environment. Hence, ITCs work culture is more suited to internationalization.

Technological Analysis

The country's manufacturing output is increasingly technology-intensive, with high-

tech manufacturing sectors such as machinery, scientific equipment and motor vehicles

enjoying a growing share of total manufacturing production since 1994. South Africa's

technological research and quality standards are world-renowned. The country has developed

a number of leading technologies, particularly in the fields of energy and fuels, steel

production, deep-level mining, telecommunications and information technology.


11/15

10|P a g e

5. CULTURAL ELEMENTS

Power distance

Power distance is defined as the extent to which the less powerful members of

institutions and organisations within a country expect and accept that power is distributedunequally.

South Africa scores 49 on this dimension which means that people to a larger extent

accept a hierarchical order and which needs no further justification.

Individualism

It is the degree of interdependence a society maintains among its members. In

individualist societies people are supposed to look after themselves and their direct family

only.

South Africa, with a score of 65 is an individualistic society, indicating a highpreference for a loosely-knit social framework in which individuals are expected to take care

of themselves and their immediate families only.

Masculinity / Femininity

A high score (masculinity) indicates that the society will be driven by competition,

achievement and success.

South Africa scores 63 on this dimension and is thus a masculine society where

managers are expected to be decisive and assertive, the emphasis is on equity, competition

and performance and conflicts are resolved by fighting them out.

Uncertainty Avoidance

The dimension uncertainty avoidance relates to the way that a society deals with the

fact that the future can never be known.

South Africa scores 49 on this dimension and thus has a preference for avoiding

uncertainty. Countries exhibiting high uncertainty avoidance maintain rigid codes of belief

and behaviour and are intolerant of unorthodox behaviour and ideas. In these cultures there is

an emotional need for rules (even if the rules never seem to work) time is money, people have

an inner urge to be busy and work hard, precision and punctuality are the norm, innovation

may be resisted, security is an important element in individual motivation.


12/15

11|P a g e

6. MARKET ENTRY STRATEGIES

Exporting

Exporting is the most traditional and well established form of operating in foreign

markets. Exporting can be defined as the marketing of goods produced in one country into

another.

Ex Sony used this strategy to dominate in TV market.

Franchising

Franchising is basically a specified form of licensing in which the franchiser not only

sells intangible property to the franchisee, but also insists that the franchisee agree to abide by

strict rules as to how it does business. The franchiser will also often assist the franchisee to

run the business on an on-going basis.

Ex McDonalds has grown by using franchising strategy.

Licensing

A licensing is an agreement whereby a licensor grants the rights to intangible property

to another entity for a specified period, and return, the licensor receives a royalty fee from the

license. Intangible property includes patents, inventions, formulas, processes, designs,

copyrights and trademarks.

Ex Xerox licensed its Xerographic know-how to Fuji Xerox.

Joint Ventures

A joint venture entails establishing a firm that is jointly owned by two or more

otherwise independent firms. Establishing a joint venture with a foreign firm has long been a

popular mode for entering a new market.

Ex Fuji Xerox was setup as a joint venture between Xerox and Fuji Photo.

Management Contracts

Contract manufacture involves a formal, long-term contract between parties in two

different countries for the manufacture or assembly of a product. The company that places the

contract retains full control over distribution and marketing.

Ex Western firms that sold their oil refining technology to the firms in Gulf states.

Market entry strategy chosen for ITC in South Africa

Direct Investment


13/15

12|P a g e

South Africa's trade and industrial policy is in the process of fundamental change,

moving from a highly protected inward looking economy towards and internationally

competitive open economy. The South African government has made progress including:

A significant reduction in tariffs No restriction on the type or extent of investments available to foreigners No government approval required on investments The development of an industrial cluster programme Abolition of exchange control on non-residents A proactive strategy to attract foreign strategic equity partners into the process of

restructuring state assets and infrastructure

The availability of investment incentives.The government has also established a National Investment Promotion Agency to

provide investors with assistance. A number of foreign companies have made investments in

South Africa ranging from a simple branch operation through to a complete manufacturingoperation.

Exporting

Direct Exporting Choice of Distribution Channel

One of the most important decisions an exporter has to make when entering a new

market directly is the selection of the correct distribution channel. The distribution channel is

determined by the product. For FMCG, retail chain will be a good option.

Retail chain

There is a growing importance in the South African market for house brands that are

manufactured specifically for a retailer under their own label. Numerous house brands in

South African retail outlets are imported. A feature of the South African retail sector is that it

operates within a very competitive marketing environment. As a result, a few large groups

dominate the retail sector. For example, there are four major retail groups that dominate the

foodstuff business, accounting for well over half of the formal retail sector.


14/15

13|P a g e

7. CONCLUSION

The discussions on all the perspectives for internationalization of the business like the

general reasons, external environment analysis, cultural dimensions, entry strategies, etc.

seem favorable and similar to the Indian business environment and strategies. The reasons for

internationalization are proactive in terms of strategic expansion of the business. The externalenvironment is conducive and hence, ITC can adapt well with its existing policies. The

cultural aspects are in line with the advantages of ITC. Hence, the likelihood of ITC to

succeed in the South African market is high, with regard to the demand for stationeries.


15/15

14|P a g e

REFERENCES

1. Market research.com. 2012. Books and Stationery Retailing in South Africa. [ONLINE] Available

at: http://www.marketresearch.com/Datamonitor-v72/Books-Stationery-Retailing-South-Africa-

6375117/. [Accessed 15 August 12].

2. The Economic Times. 2012. ITC's education and stationery SBU making profits. [ONLINE]

Available at: http://articles.economictimes.indiatimes.com/2011-07-31/news/29835704_1_chand-das-

paperkraft-education-and-stationery. [Accessed 15 August 12].

3. ITC portal. 2012. ITC Newsroom. [ONLINE] Available at: http://www.itcportal.com/about-

itc/newsroom/press-reports/PressReport.aspx?id=559&type=C&news=Conventional-greeting-card-

survive. [Accessed 15 August 12].

4. South Africa - National Statistical Data. 2012. Trading Economics. [ONLINE] Available at:

http://www.tradingeconomics.com/south-africa/indicators. [Accessed 16 August 2012].

5. South Africa - Geert Hofstede. 2012. South Africa - Geert Hofstede. [ONLINE] Available at:

http://geert-hofstede.com/south-africa.html. [Accessed 16 August 2012].

6. GE Global Innovation Barometer : Scorecard - South Africa. 2012. GE Global Innovation

Barometer : Scorecard - South Africa. [ONLINE] Available at:

http://www.ge.com/innovationbarometer/scorecard/country/south_africa.html . [Accessed 16 August

2012].

Stationaries in South Africa

Documents

Transcript of Stationaries in South Africa