International Business - South Africa
johndefeo1
IBResearchProject.docx
John Defeo, Donovan Lacey, Jon Soriano
Professor Zhang
Principles of International Business
09 April 2021
Edgewell Research Project
Based in Fairfield County, USA, Edgewell specializes in personal care such as shaving, grooming, sun care, feminine care, and skin care. With doing business that ranges from in our own home to international, companies such as Edgewell are always looking to expand and create a wider branch of outlets to sell its products.
With every business plan to expand to a different country, it comes with its advantages as well as setbacks that can mess with how things flow. While expanding to South Africa can be a great move for the company, Edgewell has to look deeper into it and make sure they can benefit from it instead of just losing from it. South Africa can offer many reasons on why expanding would be a win-win for both parties, but with the circumstances the country is in right now including strict laws can be a setback for Edgewell.
The political system is a big factor that can be identified as a challenge when looking to expand. The apartheid ended 27 years ago, with initially operating under an authoritarian political system installed by the white minorities at the time. As this shifted in a new direction, there was time to change the system as well as build from it. South Africa goes through with itself under a parliamentary republic. What this means is that one branch is held accountable to the legislature. Compared to other countries, the executive authority is seen as more complicated as well as complex to other countries such as the United States. In South Africa, they are seen as the Cabinets which hold the President, the Deputy President, as well as the Ministers.
In correlation to the business aspect in South Africa, business and regulations are not at ideal standards, but are moving in the right direction. In regards of “ease of doing business”, South Africa ranks 84th, which is seen as in the middle of the chart. The regulations have a big play in this as South Africa is involved with many organizations regarding trade including SACU, SADC, EAC, and COMSEA. South Africa has been a member of the WTO (World Trade Organization) since January 1995 and been with GATT (General Agreement of Tariffs and Trades) since 1948. With being active in all the groups above, everything goes through The Department of Trade and Industry (DTI). The DTI is set to regulate and set limits on imports. With the DTI being the main agency, the IDC (Industrial Development Corporation) funds the majority of parties in South Africa. The corrupt rank in South Africa starts 69th out of 179th, which is in the 38% tile. With an anti-corrupt system in place, but experience progress moving forward due to laws that have been put in place in the healthcare.
GRAPH ABOVE: Corrupt Ranking of South Africa from 1995-Present
In a political point of view, South Africa is performing subpar of what they are supposed to be. Moving forward in the future, the government is aiming to open its market to increase trade options as well as develop industries for trading moving forward. The political environment is not as stable as it should be, but there is not a time limit on fixing anything as nothing can happen overnight. South Africa has had continuing economic problems, initially because its apartheid policies led many countries to withhold foreign investment and to impose increasingly severe trade sanctions against it.
Legal environment
In addition to political stability, the legal environment of South Africa is important to understand when preparing a company or business to engage in operating in a foreign country. Throughout South Africa, there are three tiers of legislative authority. National, provincial, and local divisions are used to separate legal dealings in the Republic. The South African legal system is based on Roman-Dutch law and English common law. South African commercial laws and company laws are similar to that of the laws of the United Kingdom. The labor laws of South Africa are inclusive, as according to Section 23 of the Constitution of the Republic of South Africa, 1996, guarantees everyone the right to fair labor practices. The labor laws of this nation only apply to the people of the Republic of South Africa, but is also applicable to foreign nations doing business with the country. This legal structure helps to keep the law very consistent within South Africa and keeps an even application on business done in the country.
Like the United States, South Africa has many laws and regulations which protect and monitor the Intellectual Property, or IP, of businesses. Some acts implemented by their government to regulate IP are the Trademarks Act, the Copyright Act, the Patents Act, and the Plant Breeders’ Rights Act. Similar to the US, South Africa aims to protect the creative ideas or inventions of firms to preserve originality and encourage good business practices. Unlike the US, a patent, trade mark or design granted in South Africa is only valid in South Africa. A copyright is the only form of IP that is automatically recognised in the global market. All other forms of intellectual property need to be specifically assessed and approved in each country or region in which you intend to do business outside of South Africa. Regarding the actual products and goods sold and made in South African markets, the nation has product liability laws as well. Product liability claims can be based on the law of contract, delict or statutory provisions that set out liability for defective products. In the scenario where a product is faulty or dangerous in South Africa, the producer or importer, distributor or retailer of any goods are liable for defective or hazardous products. As a result, their obligations are to supply safe products with adequate instructions and warnings to the consumer. Finally, regarding product regulation, there actually is not a strict set of rules in place regulating the cosmetic market which Edewell’s Wet One’s would be competing with within the nation. According to the Global Cosmetic Compliance Summit: “Cosmetic products are not subject to registration. There is an in-market control system rather than a pre-market control system. However, all formulas containing ethyl alcohol and manufactured in South Africa must be registered with the Department of Customs and Excise for duty rebate on alcohol usage.” Based on these findings, South Africa presents itself as a legally sound nation which presents no imminent threats or issues for Edgewell looking to compete in South Africa.
Economic environment
The economic environment is yet another pivotal point to comprehend when looking to succeed in the business world in a country like South Africa. Edgewell would notice the current government's economic policy-making and management has been generally positive. South Africa's response to the Covid-19 outbreak has been a standout in the region. Government debt has increased to 82.8% of GDP in 2021, up from an already high level in 2020 (78.8%) and is expected to rise in 2022 (85.7%) South Africa’s economic freedom score is 59.7, making its economy the 99th freest in the 2021 Index. Looking at pay rates within the Republic, the currency in South Africa is the Rand, which is equivalent to 0.069 of a US Dollar. Prior to the pandemic, since January 2019, workers in South Africa have been entitled to a minimum wage of R20 per hour. This translates to around R3,500 based on a 40-hour working week. South Africa uses a residence-based taxation system whereby residents are taxed on worldwide income and non-residents are taxed on South African-sourced income. With 22.2 million of its 58 million-strong population paying taxes, most of the state's income comes from personal and corporate tax.
In 2019, South African households had an average disposable income of about 34,037 South African Rand. The South African cosmetic and personal care products market is expected to reach USD 6.16 billion during 2020-2025 at a CAGR of 9.9%. The South African cosmetics industry recorded good growth in 2018, buoyed by the increased focus on grooming and growing presence of regional brands. The South African economy is essentially based on private enterprise, but the state participates in many ways. There is a growing focus on improving living standards among South African consumers, driven by a surge in internet access, with the number of the country's internet users more than doubling during the review period. Social media is gaining more traction, with consumers’ inclination toward global fashion and beauty trends.
Analysis:
Based on these findings, South Africa is a slowly but steadily economically improving nation, showing signs of growth in GDP as well as the specific industry where this Edgewell product competes in. With healthy economic statistics such as a rebounding GDP growth rate of 3%, a climb from the -8% decrease we saw in 2020 due to the pandemic, as well as a growing industry projection of spending and focus on living standards and personal care products, we believe that Wet Ones would succeed in South Africa given the current economic conditions.
Social & cultural environment
Nelson Mandela referred to South Africa as the “rainbow nation” representing the multicultural diversity in itself. Large diversity can open up many opportunities for Edgewell. With the country sharing 11 different languages, it can bring in a market for a company such as Edgewell to expand. South Africa can offer strong business opportunities for this company. With the climate the way it is, a product such as Wet Ones would be seen as a success.
With many positives going into this, the social aspect can be seen as a red flag. With the high unemployment rate, weak social mobility, and a healthcare system that performs below par, Edgewell’s product line can be impacted by these traits.
Ecological environment
The ecological environment that would lead to a successful product launch would need to focus on the elements like the geographical location of the market, the size of the market, and the climate of the country in which the product is to be launched. There is also the need to consider the natural disasters associated with the country, the environmental pollution associated with the production, distribution, and use of the products as well as the protection needs on the product. The look into the southern African country reveals an ecological market where there are among the fastest-growing economies owing to its strategic location on the major trade routes. South Africa harbors are home to major docking ships that go round Africa from between the western and the eastern markets (Potgieter, 2018). Moreover, the country has a population of 57.78 million (2018) with a birth rate of about 20 birth rates per 1000 people, giving a population growth rate of about 1.3%. This means that the population of the country presents one of the most viable markets for the product, “Wet Ones” because the increasing population leads to increasing markets annually. The size of the market remains significantly large, thus leading to possible suitable market demand on the product, “Wet Ones''. South Africa has not experienced any major natural disasters like earthquakes, landslides, or hurricanes; hence it is a considerable place to launch out the product sales like in the case of the “Wet Ones” from Edgewell Personal Care.
There is also the need to consider the pollution factors associated with the product. The environmental factors are key in the launch and distribution of the products that are otherwise, could be deemed not safe for the environment (Giese, Klaessig, Park, Kaegi, Steinfeldt, Wigger, & Gottschalk, 2018). Key factors to consider in the understanding of the ecological elements in the business products are the possibility of creating pollution or pollutants that may lead to landfills and or other forms of environmental pollution. The product, Wet Ones-Edgewell Personal Care, is, therefore, evaluated based on their influence and possible relevance to the development of sustainable environmental sustainability and or pollution. Environmental considerations focus on the development of the products, therefore, must remain a key focus on the need to improve the environment. Therefore, there have been introduced eco-friendly baby wipes that even though are single-use, remain largely biodegradable. These are the kind so the baby wipes that have contributed towards safe environmental usage and thus creating elements of environmental sustainability. The extent to which the product would be safe to the ecological environment is key in ensuring that it remains relevant in the market of South Africa even at a time when more people are becoming aware of the need to provide safe and sustainable environmental products.
Technological Environment
The technology deployed for use in the development or production of a product is an important element that determines if the product would be successful. In this regard, therefore, it would be important for the members of the product launch team for the product, “Wet Ones" in South Africa to look into the technological preparedness of the product produced in the country. According to Killian, Kabanda and Kilian, (2017), South Africa is a middle-income country with average technological preparedness to produce such products as "Wet Ones” from Edgewell Personal Care. Moreover, (Biggeri, 2020) posited that South Africa’s considerable S&T capacities are embedded in a diversified and sophisticated institutional structure, but remain considerably useful for improving the level of organizational productivity levels.
Technology is also important when marketing the products, distribution, and also during the recycling process for environmental safety. According to (Vu, Hartley, & Kankanhalli, 2020), the internet penetration rate in South Africa stood at 64.0%, which is considered the largest for the country. This was also the highest penetration rate of the internet in the continent ahead of Nigeria (50.0%), Kenya (40.0%), Egypt (52.4%), and Botswana (47.0%) (David & Grobler, 2020). Therefore, the country can effectively make use of the high-level internet penetration to make the product, "Wet Ones”.
Technologies should also be used to effectively manage the production, distribution, and recycling process on the product "Wet Ones" to ensure effective environmental preservation and ecological improvements. The country has an industrial culture that is adequately aware of the need to improve the environmental conditions, sustainability, and improved environmental sustainability requirements. Therefore, the need to make use of technology to improve the ecological values of the product is also key.
Technological solutions can be the determinants of an improved ecological environment for the product, "Wet Ones" in the south African market. Ecological requirements for the businesses to be sustainable also go a long way into the production of the desired products in question. In normal circumstances, the ecological stakeholders would be interested in understanding how well the raw materials for making the product are extracted to ensure safety environmental sustainability, and possibly, improved environmental conservation. The extraction, and the subsequent production process for the product, “Wet Ones” has always been environmentally friendly. As a result, the product has been considered one of those that leads to improved environmental preservation and ecological improvements. Moreover, it has been an important factor to consider that the development process, the distributions, and the usage are some of the areas that such a product like Wet Ones would be detrimental to the environment. Even though the production and the distribution processes still make use of the carbon-based products, it is noteworthy that the overall influence that the product, and its associated production process has been leading to environmental sustainability.
When looking to compete in a foreign market, there are many elements of that nation which a company must consider before entering a new country. Based on our findings, South Africa is a fundamentally sound nation that possesses multiple strengths but also weaknesses that they present to incoming companies. South Africa is an elite candidate when looking to expand the business to generate a net positive value. Two key attributes that South Africa has is its climate and the market planning to grow as the government continues to shape itself to becoming a country that can be competitive with other countries. Despite the corrupt ranking of the country, it would be smart for Edgewell to expand to South Africa. Aside from the political environment, our research shows the legal and economic landscapes to be friendly for a company like Edgewell, furthered by positive growth in the cosmetic industry within the Republic. The overall rating they receive is a 3.5/5.
References
Jon:
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https://www.iqpc.com/media/1001142/41037.pdf
Donovan:
Corruption Perceptions Index - Wikipedia
South Africa - Trade Agreements
What Type Of Government Does South Africa Have? - WorldAtlas
Executive Authority (President, Cabinet and Deputy Ministers) | South African Government ( www.gov.za )
Political and Economic Stability in South Africa (hri.org)
South Africa - Cultural life | Britannica
John:
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