Factors Affecting the Entry of Zeenta in to the South African Market - Case Study Example

Name: Tutor: Course: Date: Factors Affecting the Entry of Zeenta in to the South African Market Name of Business: Zeenta Description of Product or Service: High end fashion retail Country of Business Origin: United States Country where you sell or provide service: South Africa Introduction Zeenta is a leading fashion retail outlet in the United States. Currently, the company operates 100 stores spread across different states in the country. Recently, the company has sought to make an entry into the South African market. This is in tandem with the expansion strategy adopted by the company in the recent past together with the knowledge about the growth prospects of South Africa as an emerging market in the entire African market. However, in gaining a foothold in the South African market, the company will have to tackle number of issues. This report highlights what these issues are and proposes different strategies that can be used to tackle them. The report is divided into three distinct sections. In the first section, information about business risks and potential opportunities for Zeenta in South Africa is presented. This is followed by information about legal issues which are likely to affect the operations of the company in the South African market. Laws, rules and challenges of doing business in the South African market are presented. Lastly, the report evaluates how cultural differences between the two cultures will impact its business operations in the new market. Business Issues Essentially, Zeenta will enter into the local market through acquisition of South End Fashion, a local line of high end fashion retailer shops. South End Fashion operates a number of retail outlets in leading malls in Cape Town, Pretoria and Johannesburg. It is important to note that the acquisition of the local retailer will inevitably raise several challenges to both Zeenta and the local economy. For instance, history has indicated that there has been increased resistance from local players against the takeover of local businesses by foreign-owned entities. This was the case in South Africa during the entry of Wal-Mart. When the large scale retailer sought to acquire a local retailer and thus gain a foothold in the South African retail market, there was unprecedented opposition arising from labor unions, the Competition Commission and the general public (Lewis 123). Since many factors that were raised by the government and labor unions are similar to what is likely to affect the entry of Zeenta into the local market, there is need for the company to take into account appropriate means of accommodating the demands of the government and labor unions during negotiations. Such issues entail concerns about the following: the suppliers and the local supply chain, conditions of work and the overall effect on the local retail sector. It will be prudent for the company to fully address these issues during the negotiations stage so as to avoid governmental influence in the future. Zeenta’s entry into the African market is based on the growing discovery of the attractiveness of emerging and dynamic markets. In general, growing interest in such markets has been as due to two concurrent events: the global financial crisis of 2008 and the subsequent Euro crisis. With stagnation and the relative slowdown of the economy in developed countries, many enterprises in these regions have sought new markets. These are the conditions of the macro environment that have informed the decision of Zeenta to seek new and emerging markets. South Africa represents one of the fastest growing economies in the world (OECD 29). Of particular interest is the retail and wholesale sector. In general, statistics indicate that the sector is undergoing rapid growth in terms of imports and the overall demand. The local fashion industry is dominated by imports from China. In 2009, clothing imports from China exceeded $600 million from the total $1.1billion (International Trade Center 4). As a result of the foregoing, the entry of Zeenta into this market is a sure way of exploiting the potential of this market in light of declining sales in its local outlets in the United States. Also, success in the local market will depend on how the current players are operating. Generally, customers in the local market pay much emphasis to issues to do with the type of the merchandise stocked, convenience of the location, prices and the aesthetic beauty of stores when rating the performance of fashion stores (Purushottam 70). What this means for Zeenta is that the company will have to pay much attention to these factors which will determine its overall rating and ultimate performance in the market. Legal Issues There are several ways in which the local laws, rules and other regulations will present challenges to Zeenta in the South African market. These are presented in the section that follows. To begin with, Zeenta will fall under the external companies category in the laws that govern company activities in South Africa. Under this category, Zeenta will be regarded as a company that is incorporated in a different country but has a place of business within the Republic of South Africa (Usa 234). As such, the company will not have to satisfy all the requirements of the Companies Act in South Africa. Another legal requirement that Zeenta needs to take into account when operating in South Africa regards the type of taxes that are applicable in the country. Generally, the national government in South Africa levies different types of income tax. These are: withholding tax on foreign entertainers and sports personalities; withholding tax on payments to non-residents on the sale of their immovable property in South Africa; and secondary and capital gains tax (Usa 126). Although not all these types of taxes will be applicable to Zeenta, it will be important for the company to understand what types of taxes are levied on it together with its expatriate staff. Also, there is need to consider the fact that the country has in place broad based black empowerment legislation (Green 197). The main objective of this legislation environment is to seek to benefit Africans who, until recently, were considered marginalized in terms of jobs and economic opportunities in the society. This will affect Zeenta in several ways. For instance, the way the company will hire, treat and remunerate local workers will be influence the perception of the public towards its operations in the local economy. Also, how the company approaches this issue will determine its overall relationship with government authorities in the local market. Further, there is the Occupational Health and Safety Act. Enacted back in 1993, this legislation seeks to oblige employers in the South Africa to provide safe working environments for their employees (Bendix 113). Since it is mandatory that players meet the requirements of this act, there shall be need for Zeenta to ensure that the working conditions in its stores adhere to the provisions of this legislation. Lastly, the operations of the company will be affected by the labor and employment laws that are operational in the country. Since the company will incorporate expatriate staff in its workforce, there shall be need to adhere to rules and regulations that govern work permits for foreigners in South Africa. Under these rules, there are four different categories of work permits. These are: the quota work permit, the exceptional skills work permit, intra-company transfer and the general work permit (Bester 537). On the other hand, labor relations in the country are guided by different acts which include the Labor Relations Act, Employment Equity Act, and Basic Conditions of Employment Act among others. One challenge that the company is likely to face will result from general labor relations in South Africa as a whole and in the retail sector in specific terms. The labor relations in South Africa and how this will affect the operations of Zeenta will be a product of the following factors: the overall regulatory framework in the country, the role of labor unions and general employee attitudes in the country. The labor regulatory framework in the country has been largely shaped by events that have happened in the recent past. In general, economic reforms that followed the transformation of the country from apartheid rule meant that legislations that were put in place undercut labor rights in the country. With the passage of earlier laws such as the Labor Relations Act of 1995 and the Basic Conditions of Employment Act of 1997, the labor relations environment in the country become strongly legislated (Bendix 115). The overall effect of this trend has been that workers have been effectively weakened, thus having to rely on workers unions to fight for their rights in the labor market. Another issue that Zeenta needs to take into consideration with regard to labor relations in South Africa relates to the prevailing relationship between workers and employers in the retail sector in the country. In general, the treatment of workers is based on their employment status. This means that compared to contract workers, both casual and permanent workers are mistreated by their managers in their places of work (Oxford Business Group 33). Since this form of mistreatment is usually carried out by predominantly white males belonging to the management teams of the employers, this bears a strong importance to Zeenta. Cultural Issues There are clear differences between the two cultures; that is the US culture where Zeenta is based and the culture in South Africa where the company seeks to make an entry. Many of these cultural differences are manifested in different forms including the nature of meetings, how contracts are negotiated, and interaction between individuals and how both expatriate and local employees will interact with each other. The cultural differences between the two societies and how these will affect operations of Zeenta in the South African market can be analyzed using Hofstede’s cultural analysis framework. This is presented in the sections that follow. The first dimension that affects cultural interaction in international business is the power distance index. This dimension describes the extent to which there is equality or inequality between individuals in a society (Paul 153). In societies having a high power index, there is a high level of inequality between citizens. This is demonstrated in terms of wealth and access to other resources. Compared to the United States, the South African society can be regarded as a having a high power distance index. This can be attributed to a history of apartheid rule, and the current state of a high level of poverty and unemployment. The second dimension entails individualism, or the degree to which a society reinforces individuals or collective achievement and interpersonal relationships (Cool and Goddard 214). Societies that have a lower ranking of individualism tend to emphasize extended families and collectives where all individuals take responsibility for the welfare of their fellow members. It is most likely that compared to the United States, the South African society has a lower sense of individualism. This will affect the operations of Zeenta in the way the company handles the affairs of the local staff. The third dimension of Hofstede’s cultural analysis is about masculinity. This focuses on the extent to which a society reinforces and upholds the traditional perception of masculine work and achievement. Whereas societies having high levels of masculinity experience a greater degree of gender differentiation, those having a lower level of masculinity experience a lower level of discrimination and differentiation between the two genders (Paul 154). The masculinity dimensions for Zeenta will be complicated further by the recent trends in labor relations in South Africa which indicate that more women are being forced to join the labor market than before. The last dimension that can be used to explain cultural differences between the United States and the South African societies regards long-term orientation. Many of the Asian countries, which have a high score of long term orientation, exhibit a practical and future oriented perspective as compared to other countries which focus on short term concerns and benefits. What this means for Zeenta’s entry into South Africa is that there is most likely to a clash between the two entities with regard to the need for short term benefits. Whereas the workers, the government and the general public will seek short term benefits from Zeenta’s entry, the management of the company will also be concerned with how to break even in the local market within the shortest time possible. These cultural differences between the two societies will affect not only the way local employees interact with the expatriate staff but also the manner in which Zeenta will interact with the local population that will be made up of customers, the general public and other stakeholders. For instance, cultural differences will determine how communication actually takes place amongst the people involved in the operations of the business. There is the danger of misunderstandings arising from differences between South African English and standard American English. These differences may also be enhanced by the use of slang or local colloquialisms by both employees and customers. The use of American slang is most likely to be unfamiliar in South Africa. Also, language differences will be exhibited in the way the company communicates to the local population in advertisements. There is need for the company to understand local dialects and use them, where appropriate, in its communication to the local market. Conclusion This report has presented different challenges that Zeenta will face in its expansion into South Africa. From the discussion, several issues can be concluded. These are outlined as follows. First, although there are many challenges that come with entering the South African market, evidence of expansion of the local sector as well as domination of the local industry by imports from China is enough motivation for Zeenta to enter the market. The second conclusion regards legal issues that are likely to affect the company following its entry into the South African market. It has been seen that many of the challenges will arise from labor relations as influenced by local labor and employment laws. The last issue arises from cultural differences between the two cultures: that of the United States where Zeenta is incorporated and that of South Africa where the company will expand to. It can be seen that these differences will affect the way the company communicates and interacts with employees, clients and the general public. Works Cited Bendix, Sonia. Industrial Relations in South Africa. Cape Town: Juta and Company, 2007. Bester, H. “South Africa”, in, Kontrimas, Andrius, K & Samsa, Mary, K (eds). International Expatriate Employment Handbook. New York: Kluwer Law International, 2006. Cool, Karel & Goddard, Jason. International Business: Theory and Practice. London: M. E. Sharpe, 2006. Green, Katrina, T. “Is it possible to overcome the tragedy of ubuntu? The Journey of Black Women’s Economic Empowerment Group in South Africa”, in, Marshall, Robert, C. (ed). Cooperation in Economy and Society. Plymouth: Alta Mira Press, 2010. Lewis, David. Enforcing Competition Rules in South Africa: Thieves at the Dinner Table. New York: Edward Elgar Publishing, 2013. International Trade Center “South Africa: A Market for Clothing from Africa”. 26 January 2014. http://www.intracen.org/uploadedFiles/intracenorg/Content/Exporters/Sectors/Food_and_agri_business/Cotton/AssetPDF/final%20clothing%20for%20africa%2030-12-10%20with%20cover.pdf OECD. Economic Diversification in Africa: A Review of Selected Countries. New York: OECD Publishing, 2011. Oxford Business Group. South Africa: The Report. Oxford: Oxford Business Group Publishing, 2012. Paul, Justin. International Business. New York: PHI Learning, 2011. Purushottam, Nehu. Store Attributes Preference in Selecting a store: A Study of Large Scale Retail Stores in South Africa. Journal of Business and Behavioral Sciences. 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