Is South Africa Atmosphere Suitable for the Business - Case Study Example

A country factor analysis Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 08, 12, 2010 1.0. Executive summary This report provides an explicit analysis of country factor analysis of establishing a health equipment manufacturing plant in the chosen country. South Africa was chosen because of its cost effectiveness in terms of labour and legal restrictions coupled with sound political environment. The major country analysis factor considered in this report includes political, economic, legal, cultural and education. The trade off of benefits, cost and risks associated with establishing a business in the region is also considered as an important factor. The rationale for the chosen country mainly lies on the benefits that the chosen product (surgical table) will impact on the country and the company in terms of profits. The health status of the country will be promoted by this latest surgical table which will be used in operations. The market of the surgical table will also be within and outside the country. Table of Contents 2.0.Introduction 5 3.0.Country factor analysis 5 3.1.Political 7 3.2.Economic 7 3.3.Legal 8 3.4.Culture 9 3.5.Education 9 3.6.Technology 10 4.0.Benefits of the equipment in the country 11 5.0.Risks of the health equipment in the country 11 6.0.Cost of the health equipment in the country 12 7.0. Benefit Risk Cost Trade off 12 8.0.Conclusion 13 9.0. References 15 10.0.Appendix 16 2.0. Introduction The medical equipment to be manufactured is surgical table and a cost saving country chosen as the desired destination is South Africa. The major factors that contributed to this decision making is the balanced country factor analysis as discussed in this report. Some of the most important factors include legal restrictions, political climate and economy of the country. The trade off of benefits, cost and risks are the driving factors for the decision making process. There should be a balanced management of risks and benefits of investing in the country in order to enhance the chances of success in that particular country. Surgical table is primarily used in a theatre for performing operation on a patient. The table will have five section SS top, head control system for all positions, foot pedal for controlling the height which uses hydraulic system, a foot that is detachable, brass plated clamps with nickel chrome. South Africa offers cheap labour and ready market for the product. This analysis highlights the major factors and the trade off of these factors in ensuring that the country’s atmosphere is suitable for the business. 3.0. Country factor analysis There are six major country factor analyses that will be important in considering the viability of the nominated country. These factors are important since they determine if the country will be viable for the business or not. The analysis of these factors is as follows; CFA Benefits Risks Costs Trade-off Political Sound political environment. Workers union strikes. No considerable cost due to politics Benefits more than risk and hence suitable for business Economic Developed economy Cheap labour available Effects of recession still evident Less than 250, 000 USD The stable economy of the country guarantees sustainable business activity. Legal Less legal restrictions as compared to other developed countries The legal process is slow; i.e. it takes about 4 weeks for the registration to be complete It cost about R330000 to complete the initial registration. The legal process is far favourable as compared to other countries. Culture The culture is diverse and accommodative There have been incidences of foreign related crimes in the past No cost related to culture The culture provided more conducive business environment. Education Skilled labour availability Quality production. Skilled and unskilled labour required but not guaranteed. Skilled labour require high payments The benefits of educated far outweigh their demerits and costs. Technology Testing and manufacturing of the equipment Expensive technologies required The cost is relatively high The input of technology outweighs the cost. 3.1. Political According to Lockström (2007) sound political environment is one of the major factors for consideration when establishing an international business like medical manufacturing equipment in this case. If the country chosen has volatile political environment with potential social upheaval, such a country will not be suitable for conducting any form of business since instability of political environment has a direct effect on the country’s potential as a result of increased cost of doing business. In this case, South Africa has sound political environment fostered by responsible leadership that is ready to be accountable. It is only recently that the president of the country Thabo Mbeki resigned as a result of corruption related case. Other leaders in the region will stick to power even with rampant cases of corruption in the government. Setting a business in South Africa politically is recommended since the future of politics in the country is predictable as compared to its neighbour Zimbabwe. 3.2. Economic South Africa is one of the world most developed economies, its GDP (Gross Domestic Product) is about 832 500 Million USD. It is among the top 20 countries in terms of GDP. The economy of South Africa has developed significantly since World War II. The economy of the country has developed from an agrarian based economy to mining then to technological based economy with most of its imports being raw minerals, agricultural produce, electronic, machinery, chemical and even vehicles. The major consumers of the country’s exports are Japan, Italy and USA; the country’s imports are mainly from Germany, USA and the Great Britain. Based on the sound economic position of the country, it is thus most suitable for starting a manufacturing company. The position of the country economically will be in a situation to support all the requirement of the health equipment company economically. It is also important to note that the country offers considerable cheap labour as compared to most developed European countries with high cost of labour. The neighbouring countries like Zimbabwe offer the country cheap labour and hence making the cost of product production lower (Miller & Vandome, 2010). 3.3. Legal There are a number of legal requirements necessary for setting up a business in South Africa, some of these requirements are; a memorandum of the company which takes about 4 to 6 weeks and it usually costs about R3300 without VAT. The company should register for Value Added Tax if the turnover exceeds R300 000. Other legal charges are levy on regional services, stamp duties, levy of development skills, unemployment insurance and transfer duties. The company should also register with intellectual property in order for the company to protect the interest of the manufactured product from possible piracy of their idea(Christian, 2008). 3.4. Culture South Africa culture is usually referred as a rainbow nation because of its cultural diversity. The country’s population is one of the most diverse and complex in nature, in essence about 31 million are black, 5 million and 3 million white and coloured consecutively. The population coverage of the country is about 33 people per Km2. There are several official languages of South Africa, English and Afrikaans is the most common languages in the region. The country is also diverse in terms of religion, there has been minimal religious upheaval in the country and hence the country practises sound mixed religious beliefs without interfering with the country’s business activities (Pfister, 2005). Based on the sound cultural climate of the country, business transactions are highly likely to be prosperous since the country’s practises favours business environment. Unlike most countries, South Africa holds its religious practises as a separate practise and it does not affect any business transaction in the country. This is therefore important for the surgical table health equipment to be manufactured in the country (Reuvid, 2001). 3.5. Education The education system of the country is one of the developed in the region, South Africa has the most equipped and diverse Universities in Africa. Its citizens are also educated and appreciate the importance of education to the country. The education system of the country will thus ensure that there are readily available trained medical professionals who will be important in the production of the surgical equipment. More so, source of labour for the production of the equipment will be increased as a result of cheap labour availability, the labour force required for the manufacture of the surgical table includes both the skilled and unskilled labour force to perform different functionalities. As stated by Elton & Martin (2009) in a country with educated population, the cost of doing business will generally be reduced as a result of available educated labour ready to offer services that will ensure quality equipment manufacturing. South Africa will thus offer the required balance of both the skilled and unskilled labour necessary for the production of the medical equipment in the country. 3.6. Technology South Africa is a developing country with sound technological advancement that will support the manufacture of modern surgical table which is primary health equipment in any country. Technology related medical research in South Africa has developed over time with the first kidney transplant being done over three decades ago. With respect to medical advancement, South Africa has one of the most developed medical facilities in the world. The country is highly susceptible for technological advancement and thus receptive to any form of technological development as compared to most developing countries. It recently hosted a major tournament in the world and thus proving its technological development and the ease at which the country is receptive to foreign investors. Additionally, technological development means that there will be adequate technological materials necessary for the manufacture and testing of the modern surgical table. Technological availability will also be important since the cost of manufacturing will be reduced as a result of locally available advanced technological equipments that can be used for manufacturing advanced surgical table. Technology will also play a critical role in marketing and sales of the manufactured product within and outside the country. 4.0. Benefits of the equipment in the country The country will benefit from the manufactured equipment since the first market will be the local hospitals of the country. It is also important to note that the country will benefit as a result of employment to its citizens and the taxes that the company will be paying as a result of doing business in the country. Other sectors such as insurance will also benefit as a result of levies paid to them on behalf of the company’s employees. Since there are a number of hospitals in the country, the major beneficiaries of the company will be the local hospitals. Given the importance of performing surgical procedures to patients suffering from acute diseases such as heart attack and bone disorder, advanced surgical table will not only make the process smooth but also faster. Having advanced medical equipment such as this surgical table will thus improve the country’s health and thus productivity. The economy of the country will improve as a result of increased health concerns through improvement of health facilities that are locally manufactured. The cost of the product will also be cheap as a result of reduced cost of production since the labour and the government restrictions will be considerably less ( Elton & Martin, 2009). 5.0. Risks of the health equipment in the country Like any manufactured product, there are several concerns or risks associated with manufacturing equipment in the country. Environmental hazards as a result of constructing the manufacturing equipment in the country will be unavoidable. The market predictability of the equipment will also be a major risk since accurate monitoring and predictability of the market will be beyond the scope of the company (Reitz, 2005). 6.0. Cost of the health equipment in the country There are major sources of expenditure for the company for it to be able to manufacture surgical table. The first cost as earlier indicated is the legal restriction policy which demands intellectual property registration, licence of operation in the country which takes about 4 to 6 weeks for the registration process to be complete. The other major source of expense is the amount of labour required; the labour includes both skilled and unskilled labour that will play different roles in the manufacture of the health equipment (World Bank, 2005). The raw materials and transport expense will also contribute to the cost of setting up the manufacturing firm. Other expenses include rental or purchase of land for use, tools of manufacturing and expense for constructing the facility. 7.0. Benefit Risk Cost Trade off The benefits of setting up the manufacturing industry in South Africa includes reduced production cost as a result of cheap skilled and unskilled labour, availability of ready market for the surgical equipment and possibility of growth as a result of technological, economical development of the country. As per the contribution of Bai & Ng (2008) the political and the cultural climate of the country are conducive for doing business and hence fostering possible sustainable business activity in the country. The risk associated with doing business in the country includes slow legal restrictions, possible workers strikes as experienced in the past. The major cost of doing business includes the initial capital for property acquisition, labour force cost, legal payments (VAT), equipments for manufacturing the surgical table and necessary expertise. The trade off that justifies the need to start the business in the country is simply the benefit that the health equipment will bring to the country and also to the company. The ready market and the technological advancement of the country will favour the development of the product in the country. The political and economic sound climate is a major asset for the business to prosper in the region. 8.0. Conclusion This analysis has provided several country analysis factors necessary for establishing a health manufacturing plant in the chosen country. South Africa has been chosen majorly because of the favourable business climate which includes availability of cheap labour, ready market, sound political and economic climate in the region. More so, the benefits of doing business will be more than the risks and the costs associated with starting a business in the region. South Africa economy in terms of GDP is more than 850 000 Million USD and ranked among top 20.countries in the world. This means that the customer purchasing power is high as compared to other countries in the region. The trade off clearly shows that there is more gain in doing business in the region since the benefits of doing business far outweigh the cost and the risks of doing business. 9.0. References Bai, J., & Ng, S. (2008). Large Dimensional Factor Analysis. Sydney: Now Publishers Inc. Chhokar, J.S., Felix, C.B., & Robert J.(2007). Culture and leadership across the world: the GLOBE book of in-depth studies of 25 societies. Thousand Oaks, CA: Routledge. Christian, E.(2008). Legal Aspects of Doing Business in Africa [2008]. New York, NY; Lulu.com. Elton, E. J., & Martin, J. G.(2009). Modern Portfolio Theory and Investment Analysis. New Jersey, NY: John Wiley and Sons. Lockström, M. (2007). Low-Cost Country Sourcing: Trends and Implications. Canberra: DUV. Miller, F., & Vandome, A. (2010). Economy of South Africa. New York, NY: VDM Publishing House Ltd. Pfister, R.(2005). Apartheid South Africa and African states: from pariah to middle power, 1961- 1994.New York, NY: I.B.Tauris. Reitz, D. (2005). Doing business in South Africa. New York: Deneys Reitz. Reuvid, J. (2001). Doing business in South Africa. Johannesburg: Kogan Page. World Bank. (2005). Doing business in 2005: removing obstacles to growth. Washington, DC: World Bank Publications. 10.0. Appendix CFA Benefits Risks Costs Trade-off Political Sound political environment. Workers union strikes. No considerable cost due to politics Benefits more than risk and hence suitable for business Economic Developed economy Cheap labour available Effects of recession still evident Less than 250, 000 USD The stable economy of the country guarantees sustainable business activity. Legal Less legal restrictions as compared to other developed countries The legal process is slow; i.e. it takes about 4 weeks for the registration to be complete It cost about R330000 to complete the initial registration. The legal process is far favourable as compared to other countries. Culture The culture is diverse and accommodative There have been incidences of foreign related crimes in the past No cost related to culture The culture provided more conducive business environment. Education Skilled labour availability Quality production. Skilled and unskilled labour required but not guaranteed. Skilled labour require high payments The benefits of educated far outweigh their demerits and costs. Technology Testing and manufacturing of the equipment Expensive technologies required The cost is relatively high The input of technology outweighs the cost. Read More