World market -After china, India is the second largest bicycles manufacturing country in the world with market size of more than 1500 crores. This industry is having few big players but many are small players. Background of the company -Hero cycles limited was founded in the year 1956 and at present under the leadership of B.M Munjals. The company has completed its glorious fifty years in 2006. The cycles manufactured under hero cycle brand is one of the favourite in the market it is progressive and dynamic brand from last few decades. The company is having strong net work of 3200 dealers with 4800 employees and 9.6 crores satisfied customers (superbrand 2008). The company has already sold more than 10 crores cycles. Company produces 18500 cycles in a day.
Financial overview – the company is having net worth of Rs 536 crores and capital employed of 709 crores. In the year march ending 2007, their net sale was 1363 crores which was 200 crores more than previous year. The profit after tax was 100 crores compare to 71 crores in 2006 (capitaline, 2008) International market performance – the company has already started its global journey, at present it is exporting its bicycles to Germany, Japan and US. The company has been exporting to Africa and middle east also but presently 50% exports is to European and American market (globalgearing 2008).
Market objective and strategy to enter – company is providing quality products and has certified ISO 9001 and ISO 14001. The main objective is to enter African market with the motive of starting their production unit in the country with joint venture with some existing firm. Therefore two countries Nigeria and South Africa has been analysed, to take appropriate decision South Africa South Africa is known by many names like rainbow nation, country of adventure, country of diamonds, country of wildlife etc but now days South Africa is also considered one of the fastest growing economy.
PORTER DIAMOND MODEL
Factors conditions- the country is having large quantities of natural minerals due to which it has become the largest producer and exporter of gold & platinum. UN had described South Africa as middle income country having world class infrastructure and strong economy. The labour condition is also having skilled labour. Demand conditions – as the country has shown progress after its liberalization and with the population of more than 47 million. The demand conditions in the country have improved for quality goods and their purchasing power has also increased showing growth in demand.
Strategy and rivalry – South Africa is having sophisticated business environment that is providing conducive manufacturing platform that can give competitive advantage through new market and cost reduction. Thus cycle market is not having strong players which provide ample scope. Related and supporting industries- the raw material industries and other supporting industries have shown growth in the market. The mining industry has also shown growth. Therefore for related and supporting industries is appropriate for the industry.
PEST ANALYSIS OF SOUTH AFRICA
Political factors – The government is signing many agreements to promote trade relations for example South Africa had sign US- South Africa bilateral trade treaty in 1998 for improving trade relations with USA. The country has signed treaties with EU and many African associations. The country’s government has promoted conducive business environment with less restriction and extreme liberal policies. The strategic steps taken by the country’s government are preferential tax treatment, targeting SMEs, exporters and strategic industrial projects. In certain sectors government has made more strategic steps these sectors are tourism, agro processing, fishing, automotive, mining and IT
Economic factors – Economic performance-its is having largest economy in Africa and 24th largest in world. The country is productive and industrialized economy and also has highly developed service sector. Agriculture is small part in GDP and includes citrus fruits whereas their main exports are in platinum and gold. The main import is of chemicals, petroleum products and scientific instrument. The auto sector of South Africa is playing significant role and has contributed 7.5% in country’s GDP.
FDI- and Regional blocks- last one and half decade has observed sudden increase in the competition for attracting FDI among emerging markets. South Africa has also open its economy in almost all sectors for foreign investors. There has been high record of inflows from US about $ 31 billion in the year 2005. Moreover FDI has increased by 78% in 2005 from previous year They are improving their trade relations with European, American, Asian and African countries this is mainly done through by joining economic trade bloc, they are pursuing their negotiation with EU. South Africa is also member country of WTO and founding member of ASEAN. South Africa is also member of SACU( southern African customs union) and SADC( southern African development community)
Due to its membership with WTO the country has been able to establish free market economic structure which had helped it develop its industrial environment. It has been able to attract foreign companies and promote export. they have been able to develop rules of international trade, and elevating South Africa ‘s international statusInternational Trade International partners – the country is having many partners at international level these are US, china, Japan, UK, Italy and Belgium Global Monetary system – South Africa is richest country in the Africa. The country’s economy is strong but it is still fighting with poverty and inequality in the country with the help of WTO. The country has taken loan from World Bank. The National treasury and SARB constitute the monetary authority of the country who is aiming at protecting the value of currency.
Culture- South Africa is blessed with many cultures, but due to legacy of apartheid before 1994 it was suffering from problems like cultural differences. The main languages of the country are English or Afrikaans along with other local languages. The country has more westernised and modern culture. Christianity is the common religion among blacks and white. There are Asian Indians also who speak their common language that is Hindi, telegu Bengali etc.
Ethics and Social responsibility- South Africa government has shown its concern about sustaining its rich and green environment. South Africa is the leader among international environment organisation, where main issues are conservation, climate change and biodiversity. In 2002, it was host of world summit on sustainable development. The country’s NGO are strong organisation and making pressure on both domestic and foreign companies to keep check on carbon emission and to manage their toxic waste without harming environment. Relating employment policies the country is not having many regulations and labour is not much expensive.
Technological factors The country was having technological background even before 1994 it was under the control of UK. Even after their liberalisation from apartheid regime the country continued its liberalization policy which made it progressive in technological field. Therefore the country is having good infrastructure like IT industry, and other service sector. Nigeria OLI theory -Ownership, location and internalisation The main trading partners are US and UK, in which US had invested $7 billion mainly in energy sector which is the strong resource of Nigeria.
The government is putting too high tariffs therefore companies are investing to explore their natural resources. Although government is making effort to attract MNCs but still their business practices and conditions are not very conducive for heavy investment in the country. Country is blessed with many natural resources especially oil and its related products. the resources are thus at low cost which make it an attractive location. Thus there are many factors that promote investment in Nigeria but irrespective of cheap set of resources the country is not having conducive environment. The main reasons are is its poor infrastructure and secondly is its poor regulatory environment.
Political factors – the whole country is having 36 states and one capital territory having population of 120 million people. More than 60% people live below poverty line. The country is still charging tariffs and its trade relating policies still presenting major obstacles to trade with many countries and relating to many items. Moreover many administrative policies also act as an obstacle for free trade like long clearance procedures, corruption and high unloading costs etc.
Economic factors The country is mainly dependent on its oil trade, as it is the fifth largest supplier to US and is an active partner of US. The country has tariff the main source of revenue after oil export. the government has cut duties on more than 230 items in March 2003 this cut was as low as 2.5% but it also increased tariff on 30 items which was up to 65% FDI- the FDI has increased in the country from 1980 to 2000, the inward FDI has increased from $2405 million to 20254 million. The investment from US, UK and European countries have increased mainly because of its natural resources. But the country suffers from problems like poor infrastructure and low education level.
Global and regional blocs – Nigeria has been member of many international organisation that include both regional as well global organisation like WTO. It is the prominent member of ECOWAS( economic community of west African states) having 16 countries members. The other organisations include UN, ADB, OPEC, ACP( African, Caribbean and pacific) AND OIC(Organisation of Islamic conferences). Being part of so many international organisation has helped the country to recover both economically and socially. It is also member country of NAM that has helped to develop m
Global monetary system – country’s currency is Naira(NGN) having kobo as subunit. The country’s main bank is central bank of Nigeria whose main aim is to control the availability, cost and supply of credit, along with controlling inflation, maintaining healthily balance of trade and sustaining currency through good economic growth. Financial market is still in evolving stage Social factors Culture – the country is having mix of 250 ethnicities and has communal clashes between Muslims and Christians. The country is mainly inhabited by Muslims and Christians are in minority. The society is also divided into two growth Yoruba and Ibo. The common language spoken is English and other several tribal languages are also spoken. The country is having rich literary history and is well in music and cinema.
Ethics and social responsibility – in Nigeria awareness relating to environment and ethically conducting business are not very focused area. There are no regulatory emphasis relating to these matters in the country. Regarding environmental issues the government is becoming aware about CO2 emissions and conservating natural resources but disclosures relating to these aspects have not become a common feature in the country Technological factors The country is trying to take advantage of improving there technology by learning from the MNCs but as the political environment had not been very stable therefore the country is still not very advanced in technology.
Regarding infrastructure and research and development aspects government has made many policies but due to no reviewing body they have not been very effectively implemented. Recommendation – Hero cycles have been very successful in India and its one of the top most in their cycle manufacturing business. To enter the market where it can manufacture cycles and market them profitable.
The analysis conducted above shows that among Nigeria and South Africa, South Africa is the best alternative as it has very appropriate business environment for manufacturing and marketing cycles. The main reasons for choosing South Africa is the stability of political environment, social less cultural differences, economically the country has been giving good progress and technologically also it is improving therefore the growth prospects in South African market is much more than Nigerian market.