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South African Food Essay

South Africa’s Food Retail Industry

Introduction

Recent research shows that South Africa’s retail food sector is one of the top performing sectors in the country. According to a report compiled in 2009 by Swiss business hub in South Africa, there is a significant growth in the retail food sector despite the fact that South Africa’s economy has been performing lower than expected. It is argued that the growth in the retail food sector has largely been contributed by the growing middle-class population and the increasing tourism activities in the country. According to a business guide to South Africa, the country has a good and well established public infrastructure such as good communication infrastructure, road networks among others that assist in the easy transportation of goods from the rural areas where they are produced to urban centers, where there are many markets. In relation with these statistics, this paper aims to analyze the competitiveness and attractiveness of the South Africa’s food retail industry for investment by a multinational company whose headquarters are in the UK. The analysis will be carried out using the Porter’s National Diamond Model. The paper will also discuss two crucial management issues that the multinational company has to put under considerations before extending their operations to South Africa. Finally, the paper will discuss a preferable market entry strategy into the South Africa’s retail food industry.

Part 1: Porter’s National Diamond Analysis

Porter’s Diamond model argues that there are definite reasons as to why some nations and companies in some nations perform better than others at the global level. The main argument of this model is that the home country where an organization is based provides an organization with specific factors which enhance its competitive advantages both at the local and the global level. Using this model, South Africa’s retail food industry is analyzed as follows:

Factor Conditions

Factor conditions can be described as the condition that an organization can exploit in a given nation in order to establish and improve their competitiveness. Some of these factors are the availability of highly skilled work force, their linguistic abilities and availability of raw materials.

Highly Skilled Labor Force

According to Moorad, South Africa has a high potential for almost all types of retailing operations mainly because of its labor force which is highly trained. It is important to note that South Africa is one of the most developed countries in Africa. This means that its labor force is also developed in terms of training and experience. In South Africa, there are people who have specialized in food retail as a profession because of its good pay and availability of jobs offered by the sector. This means that the multinational company can utilize the highly skilled labor force in South Africa to boost its performance in this country and gain a high competitive advantage over the other already established food retailers. In order to attract this highly skilled labor force, the company should consider strategies on how to give them better treatment compared to other employers such as providing better salaries, involving them in decision making process among others. Since there is a stiff competition among the many retail companies in South Africa, it means that there is a competition over the highly skilled workforce. This means that there is outsourcing of employees among the companies. In order to attract and retain the limited highly- skilled labor force, the company should be willing to offer additional training to them and improve their skills in order to enhance its competitive advantage.

The Linguistic Abilities of the Labor Force

According to Carmody and Qin, South Africa retail industry is one of the top sectors which are endowed with a labor force with the good linguistic abilities. Many of the customers of food products in South Africa are tourists. As such, the investors in retail food industry have realized the need to ensure that their most important customers are treated professionally in order to retain them. Therefore, many employers in this sector are providing training programs for their employees in order to upgrade their linguistic abilities and hence be able to handle all customers from the entire world. Many of the tourists to South Africa come from the United States and the UK. Due to these, the retail food work forces in this nation are fluent in almost all the languages used by tourists from these two nations. Therefore, the UK’s multinational food retail company can effectively utilize the good linguistic abilities of the labor force to effective establish and carry out its operations in South Africa. It will be highly important that the company allocates some finances in enhancing the linguistic training of the recruited labor force in order to improve its competitive advantage and hence compete equally with the other retailers in the retail food markets.

Availability of Raw Materials

South Africa is a nation rich in agricultural resources mainly due to its favorable climate. According to Kapstein, South Africa’s agriculture industry is one of the top contributors to the economy of South Africa. According to Farfan, many of the big food retailers in South Africa have been doing quite well mainly because of the availability of the raw materials which mainly come from the agricultural sector. Another fact that has contributed to improved performance of retail food industry in South Africa is the good infrastructure that connects the rural areas and the urban centers. This means that retailers can easily access their raw materials form the rural areas for their businesses which are mostly based in the urban centers. This shows that the South Africa’ retail food industry has the required and adequate resources that the UK’s multinational company needs to establish its food retailing operations in the nation. Since the raw materials are easily accessible and adequate, it means that the company will not incur huge costs and hence will be able to carry its operations at a profit. It is important that the multinational company should create good relations with the producers of the raw material in order to get the best raw materials from them and hence enhance its competitive advantages over its rivals.

Workforce Shortage

In 2012, South Africa’s Food and Drink Report by the Business Monitor International shows that many investors have focused on the food retail sector because of its good performance mainly contributed by the highly skilled labor force. However, it is important to note that many researchers on this topic argue that the sector is faced with one major challenge, which is workforce shortage. Workforce shortage has been largely contributed by the fact that there are many retail food industries, which are competing for the highly trained workforce. Many might view this factor as disadvantageous for any multinational investor establishing its operations in South Africa. However, when viewed from a different angle, workforce shortage is advantageous for a foreign investor. Since labor force for the retail food industry in South Africa is not adequate, the multinational company will have a chance to focus and specialize in automation. Unlike human labor, automation enables an organization to register almost zero defects and this means improved performance and an enhanced competitive advantage.

Demand Conditions

According to BMI, the local market for retail food products and services is large and more promising compared to the foreign markets. This is because as discussed earlier, South Africa receives many tourists every year, who are the main customers of the retail food industry. According to Mather, due to this reason, many investors have seen the potential of the local markets of South Africa’s retail food industry. Therefore, the investors have focused on improving the state of these markets instead of focusing on foreign markets. Currently, the local markets have made it possible for the local retail food companies in South Africa to gain global competitive advantages. It is, therefore, quite clear that the UK’s multinational company stands to benefit a lot by establishing its operations in the nation. Since there is a high demand of retail food goods and services in the local markets of South Africa, it will be easy for the company to extend its operations there. The company also stands to benefit from the major improvements which have been done in the local markets by the other investors in the same industry. The company also stands to gain a high global competitive advantage by establishing its operations in the already well-established and developed retail foods local markets.

Related and Supporting Industries

According to Naidoo, currently, there are many investors who are fighting for the food market share in South Africa. Because of its good performance, the retail food industry has attracted so many investors. This has led to stiff competition among the food retailers. As Motta argues competition is highly advantageous for investors. With the stiff competition, the UK retail food company will be able to come up with better innovative products and improved services in order to gain a good competitive position in the highly competitive markets. By improving its services and coming up with better products, the multinational company will both gain local and global competitive advantages over the other related industries. Research also shows that there are well established agriculture-based industries that support the retail food industry in South Africa. The development of the agriculture sector is the main reason as to why South Africa has greatly improved its food security. The support offered by agriculture-based industries has enabled many of the retail food companies to improve both in their product and service quality and hence has led to improved global competitive advantages. The multinational company, therefore, stands to benefit from the support offered by the related Agricultural-based industries and be able to enhance its global competitive advantage.

Firm Strategy, Structure and Rivalry

According to Chase, Leggete and Wamelen, the retail food industry in South Africa is highly hierarchal. There are large sophisticated supermarkets going down to small street food stalls. There are diverse food retailers in South Africa with different structures depending to their firm’s size. The hierarchal structure has also resulted into formulation and implementation of better management structures by the various investors in the sector. By investing in this industry, the UK’s multinational company stands to benefit from the strategies that are employed by other companies in the sector. The company has to employ better management strategies in order to compete equally with its rivals. Therefore, by improving its management strategies, the company will enhance its global competitive advantages and attractiveness. According to Carmody and Qin, due to the emerging food retailers in South Africa, there is growing rivalry among the many providers in this sector. This is highly advantageous for the UK multinational food retailer. By establishing its operations in this industry, the company will have to improve its competitive advantages both at the local and global level.

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Part 2: Contemporary Management Issues

From the above analysis, it is quite clear that there are various management issues that the multinational company should put under consideration before opening its operations in South Africa’s retail food industry. However, the most important management issues to be considered are: corruption and unemployment.

Corruption

According to Cowen, in many African nations, corruption has been declared a national disaster which is dragging the nations’ economy. Research shows that the misuse of an office for selfish gains leads to the recruitment of inappropriate employees, unnecessary inflation resulting from employee ranks and this leads to inefficiency. Corruption does not only affect businesses, but also a nation as a whole. Recent research shows that many African nations have been greatly affected by corruption and South Africa is not an exemption. This explains why many African nations register low Gross Domestic Product GPD per capita, low investment and growth rate. However, compared to many African nations, corruption in South Africa is not so rampant. Some researchers have argued that in nations where the government is corrupt, firms use more employees more than required to get their job done. The use of more employees increases the cost incurred in employees’ salaries and this is why an organization becomes inefficient.

Despite the fact that corruption in South Africa is not out of control, it has affected the performance of many sectors, the retail food industry included. Some big food retailers have become corrupt in the way they recruit, promote and retain their employees. This has greatly affected their performance since in most cases corruption leads to recruitment of inefficient employees who cannot perform tasks as expected. Corruption has also greatly affected the image of many food retailers and hence negatively affected their relations with their customers. This explains the reason why some big retailers are losing their customers in comparison with the small upcoming retailers who have built good image and enhanced their relations with their customers. Before entering South Africa’s retail food industry, the multinational company should first lay down strategies that will help tol avoid corruption by all means in order to create a good corporate image and hence attract as many customers as possible. The company should ensure that it carries all its operations in an open way, employee recruitment especially, in order to create healthy environment to ensure the most efficient employees are recruited to improve efficiency.

Unemployment

According to Cowen, due to high levels of corruption, many African countries are faced with the challenge of high rates of unemployment. Researchers argue that due to mismanagement of funds, many African nations have degraded their economies to an extent that they cannot provide jobs to their learned youths. In South Africa, the biggest proportion of the population affected by unemployment is the youths. This is the crucial management issue that the UK’s multinational company should consider before extending operations in South Africa. In order to build a good reputation with the society, the company should provide jobs to the local instead of carrying its foreign employees. The management team of this multinational company should view the issue of unemployment advantageous since it means that human labor is available. To enhance their corporate image more, the company should recruit the employees locally and provide them with extra training to enhance their food retailing and marketing skills. The company should ensure that the recruited employees are treated well in order to enhance their relation with the society and, at the same time, attract more qualified employees for the company top- seek jobs..

Part 3: Market Entry Strategy

According to South Africa Business Website, it is clear that the nation’s retail food industry has diverse retailers from big supermarkets to small stalls. According to this website, in the past, many investors in the nation’s retail food industry choose to be large-scale retailers who mainly based their businesses in the large towns. With time, the towns became populated with many retail food supermarkets which resulted to stiff competition. Recently, informal retail food sector has taken over the formal markets. The informal markets are growing at high rate mainly because they are more close to customers and have extended hours for their services. These markets have become an important channel that many food retailers are using to deliver their goods and services to their customers. However, recent research shows that there are some regions especially in the less developed small towns that are not able to access any of these informal retail food markets. This is because many of the retailers have not considered the locations being favorable for their businesses. Recent research also indicates that the few of the retailers in the informal markets go for 24/7 hour services. From this research, it is clear that the multinational company stands to benefit if it chooses the informal market for its entry.

However, it should provide better services compared to others already in the market in order to gain competitive advantage. Strategies such as provision of 24/7 hour services and establishment of food retail shops in the neglected small towns should be used in order to make a positive impact on the customers and be able to win them over. In the neglected small towns, the company can also establish big supermarkets in order to reach out to as many customers as possible before other retailers in the industry start expanding their businesses in these areas.

Conclusion and Recommendations

From Porter’s National Diamond analysis of the South Africa’s food retail industry, there is enough evidence that there are several factors that the UK-based multinational company can build upon in order to effectively establish its operations and, at the same, time improve its competitive advantage. South Africa has highly skilled labor force that has good linguistic abilities which are crucial for this company to effectively carry out its food retailing operations. Of greater importance is that South Africa is rich in the raw materials needed for food retailing business and this will enable the company to easily and cheaply assess these materials and hence run its operations at a profit. The company also stands to benefit from the already developed local markets due to stiff competition and rivalry and hence be able to lay strategies that will improve its global competitive advantages. However, as discussed in the paper, it is important that the company evaluates corruption and unemployment issues in South Africa before establishing its operations there since they greatly affect the efficiency of any firm.

From the paper, it is highly recommended that the multinational company should choose the informal markets as its market entry since it is the most preferred food distribution channel in South Africa currently. However, in order to gain a competitive advantage over the other retailers in these informal markets, the company should lay down strategies to offer better services and food products to the customers. Such strategies would be a 24/7 hour service and reaching out the neglected small townships. The company should also introduce new food products which are different from the ones provided by the other providers and of better quality in order to gain a good competitive position in the competitive markets.

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