Country Analysis of South Africa and Mexico - Case Study Example

Country Analysis of South Africa and Mexico of the of the Executive Summary The prepared report is based on the analysis of two countries South Africa and Mexico, from the perspective of their suitability as the foreign locations for business expansion. An analysis of each of the countries is done from various dimensions and comparisons are made between the two countries based on each of the chosen dimensions. The report is divided into five sections. The first section deals with an analysis of the market opportunities in South Africa and in Mexico. The market analysis includes the consideration of the economic factors like the gross domestic products, the personal disposable incomes and the purchasing power of the two countries. This analysis indicates that both the economies are growing economies with high potential for future growth. The second section includes a discussion of the risks associated to each country for business purposes. This analysis shows that the country risks in Mexico are much lower than that in South Africa. The third section involves the analysis of the general business environment in the two countries. This analysis indicates that the business environment in both countries are encouraging. The fifth section includes the electronic readiness of the two countries which shows that the e-readiness of Mexico is better than that of South Africa. The report is suitably concluded with recommendations given in section five. The recommendation is given for the selection of one country between South Africa and Mexico for the purpose of international expansion. From the overall analysis, it can be established that Mexico has higher prospects and suitability for the foreign expansion purposes of a company as compared to South Africa. Market opportunity South Africa is an open economy which displays its openness for businesses in all types of economic sectors since eras. The country has a sound financial system, a stable democratic legislation and a stringently regulated and controlled banking sector which makes it a haven for foreign direct investors as well as foreign institutional investors. South Africa is a country that offers the investors a number of opportunities in an emerging vibrant market and an overall climate that fosters stability as well as continuous growth. The economy of South Africa is one of the broadest based productive and industrial economies in Africa. The consumer market in South Africa is also diverse and dynamic. The consumer market in South Africa is growing with a population exceeding 1 million. A discipline based fiscal framework helps to promote employment and growth opportunities, domestic competitiveness and the outward orientation of the economy. The recent economic reforms in South Africa have given rise to higher levels stability in the macroeconomic environment. The key economic reforms introduced in the country include the education of taxes, control of fiscal deficit, lowered tariffs and relaxation of exchange controls. However, in spite of the bright future prospects, the country faces a number of socio economic challenges like unemployment, poverty and inequality which directly as well as indirectly impact the business sector of South Africa. The legal and commercial practices of the country related to the drafting of commercial agreements and business transactions are in line with the globally accepted conventions and norms. The government of South Africa is focusing on addressing the different social and economic problems through the implementation of two major economic frameworks which include the New Growth Path and the Industrial Policy Action Plan. The New Growth path is to be implemented in order to create a more equitable and developed economy through the creation of more than 5 million jobs in the country. The Industrial Policy Action plan is aimed at promoting a wider participation of the disadvantaged groups in the industrial economy of the country. Market opportunity in Mexico seems to be surprisingly high. Mexico is fast emerging as one of the major business regions with increasing scopes of development and success for domestic as well as international businesses. The country has a number of inherent strategic advantages. Added to that, the impactful policy reforms in the recent years have made the country one of the most preferred business destinations for many international companies. Mexico has started to affirm the confidence of numerous foreign investors as a result of which the foreign direct investment as well as the foreign institutional investment inflows in the country have increased at an accelerated basis. The market of Mexico has always been over protected. However, the recent policy reforms have led to the liberalization of the economy which has subsequently created a number of opportunities for the foreign companies to invest in this country (KPMG, 2012, p.19). Overall Mexico is a high growth business market with comparatively lower risk level as compared to other emerging business destinations. The economy of Mexico is becoming stable and the growing middle class population has made Mexico more attractive in terms of a number of industries. The normal industries are growing at impressive rates. Also, the luxury market in the country is expected to increase by around 10-15% annually over the next 5 years. The country is showing increasing interest in building up reliable, predictable, secure and stable domestic industries. Also, the overall economy of the country is forecasted to grow by almost 4% by 2015. The Gross Domestic product (GDP) of Mexico is has increased multiple times over years. The percentage change in the Gross D8mestic product (GDP) of Mexico from 2012 to 2014 is given in the chart below. Figure 1: Percentage in Gross Domestic Product of Mexico (Source: Trading Economics, 2014, p.3). Since many years, Mexico has tried to adopt all types of policies and strategies that can attract potential investors. The country is currently functioning with a higher level of sophistication in its economic and business policies. The current scenario in Mexico hints at the numerous possibilities for new business in the region. In the last 20 years, Mexico has transformed to a diverse and open economy from being a small closed economy. Also, the Mexican government has focused extensively on building infrastructural capabilities and has developed more competition in varied sectors including energy, telecommunication, transportation etc. to name a few. To date, Mexico has gone in to become the 13th largest economy in the globe with a total value of USD 2.4 trillion. Also, Mexico is the 11th largest country in the world in terms of the purchasing power of the consumers. The Mexican Stock Exchange has a value of around USD 451 billion which makes it the second largest stock exchange in Latin America preceded by Brazil. The biggest change that has been implemented in the business domain of Mexico in the recent years is the change in the trade policies which has played the most crucial role in boosting the growth of the economy. Country Risk The political environment of South Africa is much unsettling. The country continues to grapple with heightening economic and social inequalities, corruption and weakening of government institutions in the face of dominating ruling party. The workers in the country are much vulnerable which makes the unemployment challenges more accurate, despite the establishment of stringent legislations to protect the rights of the workers in the country. Despite the economic sectors being highly organized, the labor forces in various industries of the county continue to face a number of issues and challenges. The government of South Africa seems to be unsuccessful to a high degree when it comes to enforcing the labor laws which makes the workers sections in the country much defenseless in front of the control of the powerful employers. The economy of South Africa is highly stable and open economy which fosters the growth of businesses. The economy is also forecasted to reach USD 500.1 billion by the year 2018 (Twomey, 2013). The main strength of the economy lies in the commodity market. The high level of domestic demand also adds to the economic growth of South Africa. The technological aspects of the country are developing consistently. Also, the infrastructural capability of South Africa has become one of the most renowned among the Latin American countries. The growing popularity of the use of internet, Smartphone electronic commerce and mobile banking etc. are significant factors that affect the business domain in South Africa. The social environment is also supportive of business. The purchasing power of the society in South Africa is increasing and the interests of the people to invest in different products and services is also growing with the growth in the general economic conditions and the continuously evolving lifestyles of the medium to high class segments of the society. The spending of the South African consumers from 1990 to 2020 is given in the graph below. Figure 2: South African consumer Expenditure in USD billion (Source: Trading Economics, 2014, p.2). Despite these, there remain a number of scopes and requirements for improvement in the overall macro environment to foster the growth of businesses and industries in the country. The business environment of Mexico has much lower risks as compared to that of South Africa. The political condition is much stable and the social aspects of the people are more encouraging for a new business to enter this market. The social constitution of Mexico is not as diverse as South Africa which makes it easier for new businesses to thrive in the country in relation to the adherence to the cultural norms. Technologically also, Mexico is more advanced than South Africa. The use of the internet is very common in Mexico. Other than that the use of Smartphone, tablets and personal computers is also widespread. The uses of internet in the personal computers as well as in the mobiles have increased multiple times in the last 2-3 years. The economy is dominated by the service sector because the people of Mexico have a higher tendency to spend on services and experiences. The service sector contributes to 73% of the total Gross Domestic Product (GDP) of Mexico. The decentralization of the industries has led to more economic growth in Mexico. The population of Mexico is expected to stay stable in the next 50 years with an adequate level of workforce being available in the different sectors of the economy. Overall, the risks associated with conducting business in Mexico are lower than that with South Africa because of the politically and socially stable background of the former. Business Environment The overall business environment of South Africa seems to be encouraging for new investments. Africa is continuously becoming more integrated into the global economy. The diversified partnerships with different countries and offshore companies have revealed unforeseen economic opportunities. China is one of the main trading partners of South Africa. The immense impact of China as a global power has also added to the economic advantages of South Africa (Hatch, Becker & Van Zyl, 2010, p.14). Mexico is a country which seems to have high economic potential for the future. The market is dynamic in nature and according to the forecast of many analysts the county is likely to become the fifth largest economy in the world by 2030. The business environment of Mexico is attractive for foreign investors who seek to make new investments. Mexico is the largest trading country among the Latin American regions. The increasing Gross Domestic Product (GDP) of the country has made it possible to create a competitive and dynamic business environment in Mexico. The high Gross Domestic Product (GDP) has altered the development environment and competitive production costs in the country. Mexico is also a part of a number of free trade agreements which makes the trade barriers low in this business environment. The legal framework existing for foreign investment in Mexico is governed by the Foreign Investment Law effective from December 1993. As per this Foreign Investment Law, there are various possibilities and opportunities for the foreign businesses to invest in the economic activities on the country which were earlier restricted by the former laws. This Foreign Investment Law aims to promote the advantages of neural investment and also aims at simplifying the administrative procedures in this domain. This law also allows the foreign investing companies as well as the domestic companies owned by the foreign investors to own a 100 percent stake in the equity of the companies, manufacture new products, engage in wider economic domains, relocate or expand existing businesses and open up new business units without taking the prior approval from the government of Mexico. Electronic business readiness Digital readiness has started to assume a highly prominent role in the strategic decisions of modern business environments. The electronic business readiness of a location is significant in deciding the attractiveness of the location as a place for the international expansion of a business. Electronic readiness or digital readiness refers to the ability of businesses, governments or consumers of a country to use Information and communication technologies (ICTs) for their own benefit as well as the overall benefit of the economy. The use of Information and communication technologies helps to make an economy become more efficient and transparent. The electronic readiness of South Africa is not very high. Africa as a continent is not a very rich one. The countries in Africa can be segregated into three main categories based on the electronic readiness of these countries. The first category includes the countries with very low level of information and communication technology usage, low level of education, low Gross Domestic Product (GDP) per capita as well as infrastructural capabilities. This category includes countries like Cote d’Ivoire and Togo. The second category includes the countries with fairly good amount of infrastructure, educational capabilities and usage of information and communication technology. For example, Kenya, the third category includes the countries like South Africa which are comparatively advanced in terms of Gross Domestic product (GDP) per capita, use of technological advancements literacy level, employment level and infrastructural capabilities. However, as compared to other developing countries, the electronic readiness of South Africa is still much less. The electronic readiness of Mexico is high. The country is one of the most promising business locations in terms of its capabilities to use different available information and communication technologies. The ability of the country to use and assimilate information technology related perspectives is very strong. Mexico has been a stand out nation in this respect. The country has established numerous information and outreach connectivity and portals across the industries through the use of the e-Mexico Program. The e-Mexico program has made Mexico the 7th most electronic ready country in the e-participation index prepared by the United Nations in 2010. The electronic readiness of Mexico is one of the most advanced characteristics of the business environment existing in the country. Also, the electronic readiness of Mexico is very high as compared to other developing countries. This comparison indicates that Mexico is a much more suitable country to invest into as compared to South Africa when the comparison is made on the scale of electronic readiness of the respective countries. The electronic readiness of Mexico is higher and is definitely an advantage for Mexico in terms of being a suitable location for foreign expansion of any business. Combined with other positive factors in the business environment, the high level of electronic readiness has made Mexico a much lucrative international expansion destination for many multinational companies operating in various industrial sectors. Recommendation After analyzing the overall busies environment of South Africa and Mexico, it can be identified that the prospects of a new business are higher in Mexico than in South Africa. Though there are certain issues in the business environment, it can be said that the country is a preferable and safe option for a new business to enter into. The accelerated growth of the economy, the widespread availability of workforce, the strong infrastructural capabilities and the focus on beneficial business and trade reforms make the country a much preferred option for foreign institutional investments. Also, the political state of the country is much balanced and stable as compared to the disrupted political situations in South Africa. Overall, the opportunities in Mexico seem to be more promising for a new business. One of the main factors that affect the entry decision of a business in a new country is the level of associated country risk. The country risks for Mexico are significantly lesser than that for South Africa. Also, as discussed above, the electronic readiness of Mexico is much strong as compared to that of South Africa which makes Mexico an obvious choice among companies regarding their international expansion location choices. Therefore, considering the trade-offs it can be established that the relative opportunities for a new business are more in Mexico than in South Africa. References Hatch, G., Becker, P. & Van Zyl, M. (2010). The Dynamic African Consumer Market: Exploring Growth Opportunities in Sub-Saharan Africa. Retrieved from http://www.accenture.com/SiteCollectionDocuments/Local_South_Africa/PDF/Accenture-The-Dynamic-African-Consumer-Market-Exploring-Growth-Opportunities-in-Sub-Saharan-Africa.pdf. KPMG. (2012). Investment in Mexico. Retrieved from http://www.kpmg.com/MX/es/IssuesAndInsights/ArticlesPublications/Documents/Estudios/Investment-In-Mexico-2012.pdf. Trading Economics. (2014). Mexico GDP Growth Rate 1993-2014. Retrieved from http://www.tradingeconomics.com/mexico/gdp-growth. Twomey, M. (2013). Mexico: Emerging market opportunity next door? Retrieved from http://finance.yahoo.com/news/mexico-wake-emerging-market-next-190000014.html. Read More