The Expansion Strategy of Sportsgirl in South Africa - Case Study Example

Individual Report Writing Table of Contents 0 Introduction 4 2.0 Political Environment 5 2.1Government stability 5 2.2Government and contribution 5 2.3Analysis 5 3.0 Economic Environment 5 3.1 Interest rates 5 3.2 Inflation rates 5 3.3 Currency exchange rate 6 3.4 Type of Economy 6 3.5 Economic trends 6 3.6 Tax policies 6 3.7 Analysis 6 4.0 Socio-cultural Environment 6 4.1 Hofstede’s Cultural Dimensions 7 4.1.1 Collectivism Vs Individualism 7 4.1.2 Power Distance 7 4.1.3 Uncertainty avoidance 7 4.1.4 Time orientation 7 4.1.5 Quality Vs Quantity of life 7 4.2 Analysis 8 5.0 Technological Environment 8 5.1 Technological infrastructure 8 5.2 Communication networks 8 5.3 Logistics networks 8 5.4 Analysis 8 6.0 Legal Environment 8 6.1 Regulatory framework 8 6.2 Business laws 8 6.3 Labor laws 8 6.4 Taxation laws 9 6.5 Analysis 9 7.0 SWOT Analysis 10 8.0 Recommendations 10 9.0 References 11 1.0 Introduction Sportsgirl is one of the most iconic women’s clothing retail stores in Australia. Sportsgirl is not just an ordinary retail store; it’s a community for young girls across Australia. Sportsgirl is actually a clothing shop where fashion and color are the main two ingredients that can be seen common in all its products. The aim of this study is to plan out the expansion strategy of Sportsgirl in South Africa by analyzing the external environment of South Africa and also studying their internal strengths and weaknesses (Sportsgirl n. d.). Sportsgirl has got a very small and loyal base of suppliers, who have being with the company since the very early days. The company has always strategically streamlined its business functions with the suppliers, so as provide an open and creative work environment. The expansion decision of Sportsgirl involves the strategies for production and acquiring the raw materials. Generally manufacturing in one country and exporting it to another for sales is a time taking and costly venture. So companies looking for expansion also look for provisions and resources in the country, so that a manufacturing unit can be set there and products could be supplied in the local retail shops. Sportsgirl would have to plan out their expansion strategy, which would include their decisions for establishing a manufacturing plant in South Africa to provide an Australian flavor in clothing segment in South Africa. It must also include the innovative use of information technology for steady recognition in the African markets. The human resource should be arranged from the country itself. This would provide employment to many people in Africa and the company would be able to understand the need and preferences of the South African women. This study would include the external analysis of South Africa. In this the political, economic, socio-cultural, technological and the legal environment would be carefully studied and the strengths and weaknesses of Sportsgirl would be studied to recommend certain strategies to the company, which would help the company in expansion and getting recognition in South Africa too. 2.0 Political Environment 2.1 Government stability Local elections are held in South Africa at regulation interval of time. The last election held was in 2011, in May. The turnout of the elections was 57 percent. African National Congress won the elections with 61.95 percent votes. Though democracy prevails in the country but the regional stability is relatively low (Foreign and Commonwealth Office 2012). 2.2 Government and contribution The government wanted to build its reputation by getting the things done through the local communities. The government of South Africa has increased their fiscal spending to cut down the rate of interest. The high rate of crime and rising threat of AIDS in the country is also a challenge for the government. The investment of the European countries and also USA has increased in South Africa from time to time. Due to the premium geographical location of South Africa, all the western countries are attracted to develop business in South Africa. 2.3 Analysis The political environment in South Africa is stable, but there are numerous problems such as the economic instability, illiteracy, regional instability and health related issues in South Africa, which is why the political risks are moderate. This does not really signify that Sportsgirl will be facing any difficulty in its expansion plans. The effect can negligible. 3.0 Economic Environment 3.1 Interest rates South Africa is also regarded as an economic power-house of Africa. The GDP rate in South Africa was about 3.1 percent in the year 2008. South African enjoyed a high economic growth from the year 1996 to 2008, but during and after the global economic crisis, the GDP kept on decreasing and plunged to 1.7 percent in 2009. The GDP is expected to rise by 2.9 in 2011 and 2012, respectively (Country Industry Forecasts 2011, 1). 3.2 Inflation rates In the year 2006/2007, South Africa posted its first budget surplus of 0.3 percent. The consumer inflation was about 5 percent in 2004, which continued till 2006, but the global prices stiffed further to 6.5 percent in the year 2007. The latest inflation rate of South Africa is 5.7 percent in 2012 (World Bank 2011, 1) 3.3 Currency exchange rate The USD and South African currency rate (USDZAR), depreciated to 2.60 percent in the last month. The South African Rand is the most volatile currency nowadays. It has strengthened over the last four five years. 3.4 Type of Economy South Africa has a mixed economy. The country had a mixed economy directed towards capitalism, before African National Congress came into power, but the African National Congress wanted to build a nation which involved a mixed economy directed towards socialism. That is why the motive of the new government to concentrate on such economy which helps them to overcome the instable economic conditions and restructure the economic framework (Harris, Laurence 1989, 1). 3.5 Economic trends The South Africa economy has started reviving after the economic slowdown. The GDP has started growing from 1.7 percent in 2009 to 2.8 percent in 2010 and it continued to increase. The expected GDP of the country for the coming years are estimated to be about 4 percent. Positive growth has being noticed in the agriculture and infrastructure segment. The inflation pressure in less severe in the coming years and outputs are expected to increase. 3.6 Tax policies In South Africa the people pay two types of tax, one is to the central government and the local government. In the year 2011, the central government collected about R674.2 billion as tax revenue in which about R133.42 billion was derived from companies, R26.57 billion from custom duties, and the rest from other form of taxes. 3.7 Analysis It can be seen that the South African economy is developing now and future expectations are high regarding the growth of GDP. The currency position of South Africa is strong in the international market. So it can be said that Sportsgirl have good scope for expanding its business. 4.0 Socio-cultural Environment South Africa is an energetic country where many cultures, family forms and community are there. In South Africa there are nuclear families with extended tribes or families. The tribe also provides immense support both socially and financially to the families. The people are mainly black. It is assumed that the white South African do things at a faster pace than the black South Africans. 4.1 Hofstede’s Cultural Dimensions This would include the cultural diversity of South Africa and how those affect the individuals in the country. 4.1.1 Collectivism Vs Individualism South Africa has nuclear families, but they are closely attached to their extended family and tribe. They celebrate their collective performance, so it can be predicted that the South African society has collectivism. Though the modern generation and families reflect an individual approach, but is not the real face of Africa. 4.1.2 Power Distance The authority and power in South Africa is almost equally divided between the men and women in the society. The rate of literacy is high in the country, so the analyzing capability of the poor class is low and they accept the norms or regulations imposed by the society. 4.1.3 Uncertainty avoidance The people of South Africa have to face uncertainties due to rising level of diseases in the country, malnutrition because of stiff rise in food prices and poverty. 4.1.4 Time orientation The South African society treasures its tradition and values its past. 4.1.5 Quality Vs Quantity of life The quality of life is relatively poor to moderate because of increasing poverty, unemployment and diseases in the country. Dimension Australia South Africa Power Distances Low Moderate Uncertainty Avoidance Low-Medium Moderate Collectivism/ Individualism Highly individualistic Moderately Individualistic Time Orientation Low-Moderate High 4.2 Analysis The society of Africa is still not so modernized like the western or eastern countries, so Sportsgirl has to keep in mind relating the preferences of the African women and design products accordingly. 5.0 Technological Environment 5.1 Technological infrastructure The technological segment in South Africa has seen tremendous growth and development in the recent years. Africa has the lowest internet accessibility in the world. 5.2 Communication networks It was seen that the African offices do use the latest technology for communication, but still technological improvements are not seen significantly in the country. In the recent times Africa has seen growth in telecom services, but this does not prove that technological advancement is at its height in Africa. 5.3 Logistics networks The country is well connected by 362,000 Km of highways, 7 main sea ports and 3900 km of pipelines. 5.4 Analysis The technology is still at a very nascent stage in the country, so the concept of online shopping would not grab attention of the customers. 6.0 Legal Environment 6.1 Regulatory framework The legal environment of South Africa consist of the judicial systems, pricing policies imposed on the industry by the government, trade regulations, corporate governance and the labor laws of the country. 6.2 Business laws The business law in South Africa is formulated in such a way so that the SME sector in South Africa gets the first preference. 6.3 Labor laws The laws prohibit any gender, class or creed discrimination and equal opportunity should be given to everyone. They also state the minimum wage rates and working hours. 6.4 Taxation laws The taxation laws include the tax to be paid to the central government and the local government. 6.5 Analysis The tax system is more or less similar to the other African countries. It is neither too rigid nor too liberal. So Sportsgirl would be much affected if it exports raw materials otherwise setting up the manufacturing unit in South Africa would reduce its cost of production. 7.0 SWOT Analysis Strengths Weaknesses It is a well-known retail store High brand recognition Targets at young and middle-aged women Offers wide range of products High Quality High level of competition Prices are high Provide products for limited types of customers Only based in Australia Opportunities Threats Expansion in South Africa Developing rate of economy in South Africa Huge untapped market for fashion clothing Widespread unemployment in South Africa Rising level of poverty Cultural differences and different style of clothing (Valentin 2001, 1). 8.0 Recommendations After the complete study of the external environment of South Africa and the internal strengths and weaknesses of Sportsgirl, the following strategies can be recommended: A complete market research should be done for knowing the preferences of African women regarding fashion and clothing. A target segment has to be selected and accordingly the products should be manufactured. The price should be decided keeping in mind the target group. The local suppliers could be utilized for raw materials and manufacturing unit should be set in Africa for reducing the cost. Sportsgirl is a renowned brand, so it must go forward for expansion. 9.0 References Country Industry Forecasts. 2011. “South Africa: Industry Forecast.” Oxford Economics. Foreign and Commonwealth Office. 2012. South Africa. Accessed July 12, http://www.fco.gov.uk/en/travel-and-living-abroad/travel-advice-by-country/country-profile/sub-saharan-africa/south-africa/?profile=politics. Harris, Laurence. 1989. “The Mixed Economy of a Democratic South Africa.” London University School of Oriental and African Studies. Sportsgirl. no date. About Sportsgirl. Accessed July 12, http://www.sportsgirl.com.au/about-sportsgirl/. Valentin, E. K. 2001. “SWOT Analysis from a Resource Based View.” Weber State University. World Bank. 2011. “South Africa Economic Update.” The World Bank Group Issue 1. Read More