Robust Relations SWOT With Africa - Report Example

Introduction Holden Company is one of the leading Australian automakers having a rich history of making and marketing automobiles in the region. It is subsidiary of GM Motors and is operating in the auto industry with Australia as its main market. In order to evolve and expand into other regions, Holden can expand into South Africa by exporting the raw materials and making and marketing the finished goods there. To expand into South African region successfully, the firm will require setting up Greenfield project with the focus on important relevant technology and skilled workforce. This report will provide a PESTLE and SWOT analysis for Holden to expand in South African region. Political Environment Government Stability South Africa has a long history of apartheid and volatile political environment; however, the overall situation is now well-balanced and is transitioning towards democracy (The Economist, 2011). Elections take place regularly; however, it is a one party dominated democracy wherein African National Congress is the majority party in the country. It has been suggested that the support for the main party, however, is gradually eroding in favor of other opposition parties. Long military rule, as well as Apartheid, have made the political system polarized in the past; however, with the end of Apartheid, political system is on the track of representative democracy. Overall, government is stable, but there is growing corruption (The Economist, 2011). Government and Contribution South Africa is also considered in the same group in which BRIC countries are placed. This has mostly been possible due to overall support of government in strengthening and supporting foreign direct investment in the country (Gunnion 2012). Australia and South Africa tend to enjoy better relationships with each other (Chimakure 2010). During recent times, South Africa has been able to attract more foreign direct investment indicating that international investors are willing to bet on South Africa as a viable destination. Analysis Overall, government is stable and supportive as many international firms are finding South Africa as a viable and stable state with supportive governance policies. Government is supportive of the international firms and there are relatively little beaurucratic hurdles in forming the companies. This will be, therefore, one of the key factors for Holden to ensure that the government does not intervene into its expansion plans. Legal Environment Regulatory Framework Both Australia and South Africa have a colonial past; therefore, their legislative framework is also based upon the principles laid down in the British laws and regulations. South African laws however are also based upon the local customs and offer a relatively unique environment which differ from Australia. Business Laws There are certain restrictions on the import and export of agricultural products in South Africa, including dairy products. The country also has banned the items such as timber, animal leather as well as birds, and has implemented stronger inspection controls over import of fruits (International Trade Center 2010). It has been mainly due to protect the local industry and ensure compliance with health and safety standards. Labor Laws Though there are similarities between the legal infrastructure of Australia and South Africa, there exist certain differences. Labor laws do exist in the country; however, the importation laws may restrict the ability of Holden Company to actually face difficulties. As per labor laws in South Africa, any foreign business in the country cannot actually escape the labor laws, as for the legal purpose, a foreign firm is treated as local. The age restriction laws are critically implemented to discourage child labor in the country (Right to Education Project 2012). Analysis The existence of labor laws, age restrictions as well as working times are some issues which Holden will have to deal with in order to ensure that it complies with all the local labor laws of South Africa. Holden will have to ensure that its hiring and recruitment policies comply with the existing labor laws and that it must also focus on understanding laws governing the working of expats in South Africa also. Economic Environment Interest Rates The overall level of interest rates is higher in South Africa as compared to Australia. The higher rates of interests can make borrowing costly for Holden in South Africa. Discount rates in South Africa are 5.5%1 whereas in Australia, they are 4.25%.2 Currency Exchange Rates The current exchange rates between Australian Dollar and South African Rand indicates that 1 Aus. $ is equal to 8.42 South African Rands.3 This larger difference in the currency can cause some losses to Holden due to translation of foreign currency transactions. Economic Trends When compared with Australia, the South African economy did not perform well during the last 10 years. The economy, however, is now showing encouraging signs and that it will recover and perform well in future. Higher level of foreign direct investment into South Africa during recent times has been considered as one of the encouraging signs for international players. This increasing trend may also indicate that the government is relatively open allowing foreign firms to establish their base in the country. Analysis The economy is performing relatively well and, therefore, can offer a well-developed local market for Holden. Strong local and domestic demand along with favorable trade conditions can assist Holden in performing better in this market. Interest rates are relatively higher making borrowing costly and as such, Holden may have to tap into the international capital markets to raise any required funds to expand in future. Socio-Cultural Environment Hofstede’s Cultural Dimensions for South Africa Collectivism vs. Individualism South Africa is a highly individualistic society with individuals capable of taking care of themselves and their families. Power Distance South African people tend to accept hierarchical power and tend to live with a certain order where everyone’s place is already defined. Uncertainty avoidance South Africans tend to avoid uncertainty suggesting that they follow rigid rules and beliefs and also view unorthodox behavior unfavorably. Time orientation South Africans do not seem to have any time orientation. Quality vs. Quantity South African society is largely a masculine society with more focus on competition and assertiveness. Due to typical demography of the country, these characteristics differ by black and white population (Hofstede 2012). Analysis The above analysis indicates that South Africa is a relatively open society and is graduating towards adapting norms and values which are prevailing in the developed Western societies. The fact that people accept hierarchical authority can help management to effectively maintain control and develop a viable corporate environment. Technological Environment Technological Infrastructure In order to effectively produce vehicles and manage all the supply chains, Holden has to implement effectively technology infrastructure. This technology infrastructure needs to be imported from Australia because there are no local manufacturers of such large manufacturing plants. Communication Networks South Africa seems to possess modern communication networks with built-in telephone networks and advanced Internet and telecommunication systems in place. High speed Internet connectivity is also available. Logistics Network South Africa has one of the advanced logistic networks in the region with major and large groups forming the backbone of logistics network of the country. There are different larger and smaller groups forming an effective and relatively large network of logistic facilities thus making it easier for larger firms to easily develop a network of dealers and customers. Analysis The above discussion indicates that Holden may have to face relative difficulties in importing the manufacturing plant. Setting up the plant along with the related other manufacturing facilities may hamper the initial progress of Holden while expanding into the market. Lack of skilled labor may disallow Holden to easily implement the technology transferred to expand in South Africa. All other facilities are available within the country. SWOT Analysis Strengths 1. Long history and rich experience in the automobile market. 2. Large financial resources coupled with access to capital markets to raise more funds. Weaknesses 1. There may be a lack of skilled workforce in the country. 2. Higher level of competition Opportunities 1. Political environment is encouraging, which can allow Holden to further expand in the region. 2. Reliable logistic networks can help the firm to establish a better dealer network Threats 1. Higher level of corruption in the country can be a threat. Recommendations Considering the above discussion, it is critical for Holden to expand into this region as the economy and the existing environment will provide it with a competitive edge over other players in the market. South Africa’s economy is stable and with growing levels of incomes, the demand for automobiles will increase. With supportive political environment with mostly an English speaking population, Holden can find a more mature and grown up market which it can easily capitalize on. Holden, therefore, should go ahead with the expansion plans as quickly as possible because it has a relatively expanding market with a more potential domestic demand. Higher level of corruption in South Africa can serve as one of the threats and firm will have to develop its influence in order to successful negotiate with the rising corruption. Reference List Chimakure, Constantine. 2010. Australia Seeks Robust Relations With Africa. http://earthassistance.org/news/australia-seeks-robust-relations-with-africa/ “Corruption in South Africa: A Can of Worms.” 2011. The Economist, October 29. http://www.economist.com/node/21533410 “Democracy in South Africa: A Step Backwards.” 2011. The Economist, February 11. http://www.economist.com/node/18119187 Gunnion, Stephen. 2012. South African FDI Jumps To $5.8 Billion, Business Report Says. http://www.bloomberg.com/news/2012-07-06/south-african-fdi-jumps-to-5-8-billion-business-report-says.html Hofstede, Geert. South Africa. 2012. http://geert-hofstede.com/south-africa.html International Trade Center. 2010. South Africa: A Potential Market For Agri-Food Products From Africa. http://www.intracen.org/uploadedFiles/intracenorg/Content/Exporters/Sectoral_Information/Agricultural_Products/Fruits_and_Vegetables/final%20agri-food%20products%2013-12-10.pdf Right to Education Project. National Law and Policies on Minimum Ages – South Africa. 2012. http://www.right-to-education.org/country-node/522/country-minimum Read More