Arnotts Biscuit Australias Expansion Strategy into South Africa - Essay Example

Arnott’s Biscuit Australia Your “An analysis of Arnott’s Biscuit Australia’s Expansion strategy into South Africa” 1.0 Introduction Arnott’s Biscuits Australia has been one of the staple of the biscuits and snacks industry for the past 146 years. With established and popular brands in chocolate and sweet biscuits and savory crackers, the corporation utilizes state-of-the-art manufacturing and distributing facilities to ensure their local market share of almost 70%. Under the ownership of Campbell Soup company (America) the organization has recently adopted a strategy of internationalization even as more funding is going into improving their local operations1. This paper will strive to a market analysis for South Africa and suggest a suitable expansion strategy for Arnott’s biscuits as it moves into the market, based on their operation al strategy and strengths. The proposed expansion should roll out in several stages; the first of these could be establishment of packaging and distribution facilities in the region with the original products exported to South Arica from company bakeries in Australia. This will allow them to continue with minimal risk of jeopardizing the quality or essence of their product while forming connections with the local industry and community and capturing a suitable market base before the product can be manufactured directly from sources in the region. Arnott’s is known for its strict policies on the standard of raw material they use and their efficient modern production facilities. For the first stage they will require physical assets in form of packaging and storage facilities; distribution and transport vehicles and a labor force which can be comprised mainly of unskilled workers. A well developed infrastructure would be one of their requirements to be provided by the governing and civil bodies. Otherwise Arnotts will not need any special resources (equipment or raw material) to start their expansion process in South Africa. In order to be fully aware of the any challenges or opportunities they will find during the implementation of the expansion strategy, organizations have to do in depth analysis of the region or country they are considering as a viable option. PESTL analysis is a macroeconomic tool which helps organizations in making strategic management decisions; these decisions should be made after considering the internal factors which are in play for the organization. A PESTL analysis and SWOT analysis of the organization are presented in the paper to show the feasibility of the expansion strategy for Arnott’s biscuits. 2.0 PESTL analysis “South Africa has enormous potential as an investment destination, offering a unique combination of highly developed first world economic infrastructure with a vibrant emerging market economy.”2 A PESTL analysis can better identify the external factors which will impact any organization who wants to operate in the region. 2.1 Political Environment South Africa is a multiparty parliamentary democracy in which constitutional power is shared between the president and the Parliament. The post-apartheid governments have done a lot to ensure the nation’s peaceful transition into a democratic state with social well being one of its main agendas. Since the 2011 elections, there has been relative stability in the political arena with measures in place to ensure the nations’ economic and social development. Many policies have been formed to decrease human rights violation, provide education and employment opportunities and to curtail political violence and abuse of the system.3 There have not been many open cases of corruption within the governmental bodies but the civil services specially law enforcement has had troubles with members abusing their authority and incidences of corruption. There was prediction that the year 2012 would bring greater unrest in the region as the people were agitated and civil demonstrations about wages and working conditions were expected. There was also the alleged internal conflict in the ruling party which could have caused trouble for policy implementation.4 The relationship of provincial and local administrative structures to the national government is another cause of concern as many groups want greater autonomy from the government- they are allowed to manage their own budget and funding. The overall situation seems to point out a sincere government, who favors economic development but the history of the region has made equal economic and political stability difficult to achieve. This makes the country a good area for expansion as the government would welcome foreign direct investment but the risk of civil disturbance and lack of facilities in certain areas can be anticipated. 2.2 Economical Environment South Africa remains a two-tiered economy since the political change the country faced, with development distributed unequally within the society. The democratic government has taken budgetary reforms to change this disparity in recent years. The Medium-Term Expenditure Framework and the Public Finance Management Acts along with structural changes to the monetary policy framework have been widely acclaimed. South Africa has an acceptance of free market principles with a sound competitiveness business environment. South Africa ranked 35th out of 178 countries in the World Bank and International Finance Corporations Doing Business 2008 report5. The Real interest rate is stabilized and Inflation was expected to average 5.8% and 5.6% in 2010 and 2011, respectively- which is better controlled than any other African country. In 2005, the government began formulating a new strategy to boost the countrys economic growth rate to 6% of GDP by 2014 and reduce unemployment. 2.3 Socio-cultural Environment The current Population of South Africa is (2011): 50.59 million6. With a varied composition of the population and many diverse groups in the country, there is a rich cultural heritage and work culture in the country- along with western influences due to th e increasing communication and media links prevalent. The Hofstede’s cultural dimensions help to give us as idea of Australia’s and South Africa’s cultural tendencies, showing whether Arnott’s Biscuits’ Strategies will work in the country or could cultural challenges come in the way: This comparison (available from the Geert Hofstede website)7 highlights that except for the Individualism factor which is much higher for Australia, the culture of South Africa is compatible with that followed in the organization. The future orientation ranking for South Africa is not available but from the attitude of government bodies and the people it can be deduced that building and saving up for their future is important for them but the focus is on developing the present and it matches up to Australia’s score. 2.4 Technical environment South Africa has an industrial production growth superior than that of most developing countries and it is supported by a growing research and development sector. Their expertise is in sectors like “energy and fuels, steel production, deep-level mining, telecommunications and information technology.” For Arnott’s this is good news for when they move manufacturing to South Africa but for the proposed expansion the important thing for them is a well developed infrastructure and industry zones which have been provided by the government. Modern transport facilities, sophisticated communication channels and low-cost energy are available for use in most urban areas but the coverage in rural areas is poor. 2.5 Legal environment The government has created a legal environment which is attractive for Foreign Direct investments and with the implementation of World Trade organization’s obligations, the economy is becoming more favorable towards privatization and open market. “Investment and Development Cooperative Agreement was signed in July 2008. The four areas singled out for special attention under the TIDCA are customs cooperation, technical barriers to trade, sanitary/phytosanitary (SPS) issues, and trade and investment promotion” A strong legal framework is established which aims to protect the rights of workers and their competition policy, copyright, patents, trademarks and disputes have been designed in accordance with international norms. All these measures indicate towards a government in strong favor of economic development and fair distribution of wealth while allowing foreign investors a safe environment to conduct their business. For Arnott’s Biscuits this should be a positive factor in when deciding to move into the market, but it has to be kept in mind that the democracy South Africa is still weak and disturbance could render these legal protections void. 3.0 SWOT Analysis One the organization has taken stock of the conditions it will face when working in South Africa, an internal analysis can guide them towards better strategic decisions with regards to the expansion 3.1 Strengths A strong local brand with presence in over 40 countries through exports or direct manufacturing A portfolio of diverse products which can be modified to cater to different tastes Backing from Campbell Soups who can provide necessary capital for expansion8 Experience in manufacturing in different countries such as Papua New Guinea and Indonesia. Good sales figures for last few years, giving financial liquidity Manufacturing capabilities to produce more or different products 3.2 Weaknesses No experience working in African countries before The products portfolio may not be suitable for the country of expansion The product may be too expensive for the local market 3.3 Opportunities Africa will provide them a gateway for accessing sub Saharan markets Globalization and commercialization of cultures have made people develop a taste for western style foods Supportive Government Stable Economic conditions which will help in establishing plants and factories at predictable costs Unskilled labor available to develop their packaging and distribution networks Technology and skilled labors available for manufacturing plant and equipments Water, air and land transport routes accessible for moving products (and raw materials) 3.4 Threats Competition from local market Failure of their products to appeal to locals Political instability leading to turbulent business conditions Civil unrest can disrupt operations Distribution into rural areas could be hindered because of lack of facilities The unequal wealth distribution can lower the demand for their products within South Africa 4.0 Recommendations: Given the SWOT analysis and PESTL analysis it can be seen that initial suggestion for an eventual roll out of the expansion plan still holds valid. Arnott’s Biscuits has enough capital and expertise to allow wide distribution in South Africa while sourcing local facilities for packaging and distribution. A long term operations will allow them to better understand the environment they are operating in and decide the strategic intelligence of moving production to the country. South Africa is headed in the right direction, economically and politically speaking. However, the danger of civil unrest (especially with the upcoming elections) doesn’t bore well for any new entrants into the market. Arnott’s Biscuits should develop their market and customer base and cautiously move forward with the expansion project. WORKS CITED: Company profiles. Arnotts Ltd. History, Funding Universe, http://www.fundinguniverse.com/company-histories/arnott-s-ltd-history/ (AccessedJuly 17th, 2012) Bureu of African Affairs, Background Note: South Africa, US Department of State, http://www.state.gov/r/pa/ei/bgn/2898.htm (Accessed July 17th, 2012) SouthAfrica. Info, South Africa: open for business, http://www.southafrica.info/business/investing/open.htm (Accessed July 17th, 2012) Holford-Walker, Lucy. 2012- How will South Afrcan politics fare? The Oppidan Press, http://oppidanpress.com/2012-how-will-south-african-politics-fare/(Accessed July 17th, 2012) National Cultures, Countries. Australia, Geert Hofstede, http://geert-hofstede.com/australia.html (Accessed July 17th, 2012) Company Team, About Us, Corporate profile, Arnott’s Biscuits, http://www.arnotts.com.au/about-us/corporate-profile.aspx (Accessed July 17th, 2012) Read More