STAT TIONE SINS THAF A ERIES SOUT FRICA

INTERN NATION NALBU USINESSAM MINIPR ROJECT T

N.N. ABIM MANYU TRAVEEN CHARLES T N STON. J M. VINOD RAJA D R.V RAM V. ZAR REEN. R

Table of Contents
EXECUTIVE SUMMARY .................................................................................................................... 2 1. INTRODUCTION .............................................................................................................................. 3 2. REASONS FOR INTERNATIONALIZATION ................................................................................ 4 3. TRADE THEORIES ........................................................................................................................... 5 4. PEST ANALYSIS .............................................................................................................................. 7 5. CULTURAL ELEMENTS ............................................................................................................... 10 6. MARKET ENTRY STRATEGIES .................................................................................................. 11 7. CONCLUSION ................................................................................................................................. 13 REFERENCES ..................................................................................................................................... 14

List of Figures

1. THE GRAPH DEPICTING USDZAR EXCHANGE RATES 2. THE GRAPH DEPICTING THE GDP TREND OF SOUTH AFRICA 3. THE GRAPH DEPICTING THE INFLATION RATE IN SOUTH AFRICA

1|P a g e

EXECUTIVE SUMMARY
On researching the different international markets of choice like the US, UK and South Africa, the reason for choosing South Africa as the market of choice is because it is the road less taken. South Africa is a growing economy with the rapid expansion of Africas consumer class. From 2000 to 2010, GDP per capita of South Africa increased from $3,020 to $7,275, representing a healthy 9.2 per cent compound annual growth rate. This is expected to boost consumer spending by more than 60%. The population growth of 2 per cent and continued urbanization will result in the entry of around 221 million basic needs consumers in the African market by 2015, of which a major portion would be in South Africa. (Research Monitor, 2012) The demand for stationery in South Africa is high and many European and Middle East companies are tapping the abundant market available. The stationery market in South Africa is about 3.6% of the total retail value and is steadily growing at the rate of 9% every year. (Market Research.com, 2012) On the other hand, ITC, with its GGSB segment is aiming to establish a 25% growth against the 10-11% growth of the industry. Competition in the Indian stationery industry from the unorganized sector constitutes 75% of the market, which is very high. Though ITC holds only 12% of the market, it is the market leader. The above growth figures are not conducive for ITCs strategy of 25% growth in the industry. Thus, here comes the need for it to enter global markets of which UAE, Nepal, Malaysia and China are already in the list. As the stationery market of South Africa is large, it is estimated that the opportunity for ITC in the market is huge. The Analysis of various factors for internalization is also discussed which is highly favorable for ITCs success in the market with its renowned Marketing and distribution strategies.

2|P a g e

1. INT TRODUC CTION

ITC is one of India's foremost private secto compani with a t e p or ies turnover of US $ 7 billion. ITC has a diversified presence in FMCG, Hotels, Pap d i perboards & Specialty Papers, Packagi ing, Agri-B Business, and Information Technol d logy. ITC la aunched line of premiu range e um of noteb books unde brand Pap er perkraft in 2002. To a augment its offering an to reach a wider nd student population the Class n, smate range of notebo e ooks was la aunched in 2003. Year 2007rs 2009 sa the launc of Practi Books, Drawing B aw ch ical Books, Geom metry Boxe Pens and Pencils es, d under t 'Classm the mate' brand. In 2008, ITC positio oned the bu usiness as the Educat tion and Statione Produc Business and laun ery cts nched India first en a's nvironment friendly p premium busines paper un ss nder the 'Pa aperkraft' B Brand. 'Pape erkraft' offe a diver portfolio in the fers rse o premium executive stationery and office consumab segmen In 2010, Colour Cr m e y e bles nt. , rew was launche as a new brand of a stationer Classma brand a ed w art ry. ate addressing t needs of school the goers an Paperkra targeted towards co nd aft ollege stude and exe ents ecutives. IT already h 20% TC has share in terms of cards and 5 in statio n c 5% onary. Class smate has 900 distribu 9 utors who m make the product available in over 70,0 outlets in India and also in UA China and Malaysi ts 000 d AE, a ia. 1.1. ITC PRODUC AND BRANDS C CTS

ITC, throug the Clas gh ssmate Con nnect programme, targ geted 4,000 schools ac cross 15 cities in the country around 1.2 lakh st n y d tudents in 2 2011. (ITC P Portal, 2012 2).

3|P a g e

2. REASONS FOR INTERNATIONALIZATION

The annual consumer spend in the Greeting (Cards), Gifting and Stationery Business (GGSB) segment is at around Rs 2,000 crores, recording a steady 9 per cent average growth in the last three years. The company now aims to convert GGSB into a 500-crore business by 2010-11, with special thrust on notebooks and stationery products. As a part of this corporate strategy and the urge to expand their market, the ITC GGSB segment has expanded to the UAE, Malaysia and China. (ITC portal, 2012) The 4000 crore Notebook business, ITC has heavy competitors; even though it is leading the market followed by Navneet, 75% of the market is unorganized. So, looking into these arenas ITC has heavy competition in the Indian Market and to reach its strategic target. It has to work with its internationalization plans. South Africa has been chosen as the best place for ITCs growth in the GGSB segment because of the high demand of stationery in Africa. The books, news and stationery sector accounted for 3.6% of the total retail value in South Africa in 2009. The sector has increased at a compound annual growth rate (CAGR) of 8.6% between 2004 and 2009. The South African market is also highly welcoming the ecofriendly papers from recyclable fibres and presently constitutes 50.8% of its total paper. (The Economic Times, 2012) The rapid expansion of Africas consumer class has resulted in many companies to enter the region that many have avoided in the past. Consumer spending is expected to increase by more than 60%. Thus, ITC has a good opportunity when it opens its stationery market in South Africa. (Market Research.com, 2012)

4|P a g e

3. TRADE THEORIES
Analysis based on the Porters Four Diamonds Theory South Africa enjoys certain competitive advantage which attracts the FMCG companies in India to those markets. One way of analysing this competitive advantage is by using the Porters Four Diamond Theory. Porters Four Diamonds Theory shows that four conditions are important for competitive superiority namely: Demand Conditions Factor Conditions Related and Supporting Industries Firms Strategy, Structure and Rivalry

Demand Conditions South Africa has a large consumer market which shows positive signs of strong growth. South Africa's business opportunities are potentially very large, particularly for companies in fast moving consumer goods industry. The consumer spending across the continent has increased at a compound annual rate of 16 per cent. This is the driving force that creates a huge demand for consumer goods in South Africa. Factor Conditions South Africas labour force is expanding at a considerable rate. The availability of low cost labour is another factor that attracts the FMCG majors in India to invest in South Africa. The political actions of the South African government are also being aimed at creating a positive foreign investment environment. Related and Supporting Industries As the South African economy started growing, many multinational companies started their operations there. This helped in creating a good distribution and logistics network, throughout South Africa which could be leveraged by the FMCG companies. The progress in the agricultural segment in the African countries provided support to the FMCG companies in the form of raw materials. Firm Strategy The Indian FMCG companies which have invested in South Africa and other parts of Africa have a stable business model. The expertise and skills of these companies in India could be utilized to reap the business opportunities offered in South Africa. The strategy of

5|P a g e

these FMCG companies is to buy facilities in the African countries to serve as a regional manufacturing base for selling its products in Europe, North America and Africa.

6|P a g e

4. PEST ANALYSIS
The PEST analysis of South Africa constitutes political, legal, economic, social, cultural and technological aspects of doing business in the country. Political & Legal Analysis South Africa has a world-class, progressive legal framework. Legislation pertaining to commerce, labour and maritime issues is well developed, while laws relating to competition policy, copyright, patents, trademarks and disputes conform to international norms and conventions. Sanctity of contract is protected under common law, and independent courts ensure respect for commercial rights and obligations. The independence of the judiciary is guaranteed by the Constitution. South Africa's financial systems are sophisticated, robust and well regulated. South African banking regulations rank with the best in the world, while the sector has long been rated among the top 10 globally. Foreign banks are well represented and electronic banking facilities are extensive, with internet banking a growth feature of the sector. Economic Analysis Since the advent of democracy in 1994, South Africa's economy has been undergoing structural transformation, with the implementation of macro-economic policies aimed at promoting domestic competitiveness, growth and employment and increasing the economy's outward orientation. Taxes have been reduced, tariffs lowered, the fiscal deficit brought under control, and exchange controls relaxed. South Africa's central bank, the SA Reserve Bank, maintains its independence from the government. The Bank's programme of inflation targeting has shown good results: the real interest rate has stabilized and the currency remains at competitive levels. Consumer inflation came in at under 5% from 2004 through 2006 before global prices pushed it up to 6.5% in 2007. In 1994 it stood at 9.8%. The government has made it clear that foreign investment is welcome in South Africa, and investor-friendly policies support the public pronouncements. In 2005, the government began formulating a new strategy to boost the country's economic growth rate to 6% of GDP by 2014 and reduce unemployment. Implementation of the strategy involving large-scale state investment in infrastructure, small business and skills development, and interventions targeting specific areas of the economy is well under way. The four major economic areas are: Cape Town, Port Elizabeth, Durban, and Pretoria/Johannesburg. Their monetary note, Zar is the most actively traded emerging market currency.

7|P a g e

8|P a g e

Social & Cultural Analysis With a growing population of 49,052,489 and eleven official languages among which English dominates, South Africa has become an intensely divertive nation. The South African black majority still has a substantial number of rural inhabitants with strong cultural values who lead largely impoverished live. The blacks have become increasingly urbanized and westernized while aspects of traditional culture have declined. Currently, South Africans are worried about the future and their fear is fuelling a considerable change in their buying habits. ITCs mission is to enhance the wealth generating capability of the enterprise in a globalizing environment. Hence, ITCs work culture is more suited to internationalization. Technological Analysis The country's manufacturing output is increasingly technology-intensive, with hightech manufacturing sectors such as machinery, scientific equipment and motor vehicles enjoying a growing share of total manufacturing production since 1994. South Africa's technological research and quality standards are world-renowned. The country has developed a number of leading technologies, particularly in the fields of energy and fuels, steel production, deep-level mining, telecommunications and information technology.

9|P a g e

5. CULTURAL ELEMENTS
Power distance Power distance is defined as the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally. South Africa scores 49 on this dimension which means that people to a larger extent accept a hierarchical order and which needs no further justification. Individualism It is the degree of interdependence a society maintains among its members. In individualist societies people are supposed to look after themselves and their direct family only. South Africa, with a score of 65 is an individualistic society, indicating a high preference for a loosely-knit social framework in which individuals are expected to take care of themselves and their immediate families only. Masculinity / Femininity A high score (masculinity) indicates that the society will be driven by competition, achievement and success. South Africa scores 63 on this dimension and is thus a masculine society where managers are expected to be decisive and assertive, the emphasis is on equity, competition and performance and conflicts are resolved by fighting them out. Uncertainty Avoidance The dimension uncertainty avoidance relates to the way that a society deals with the fact that the future can never be known. South Africa scores 49 on this dimension and thus has a preference for avoiding uncertainty. Countries exhibiting high uncertainty avoidance maintain rigid codes of belief and behaviour and are intolerant of unorthodox behaviour and ideas. In these cultures there is an emotional need for rules (even if the rules never seem to work) time is money, people have an inner urge to be busy and work hard, precision and punctuality are the norm, innovation may be resisted, security is an important element in individual motivation.

10|P a g e

6. MARKET ENTRY STRATEGIES

Exporting Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Ex Sony used this strategy to dominate in TV market. Franchising Franchising is basically a specified form of licensing in which the franchiser not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business. The franchiser will also often assist the franchisee to run the business on an on-going basis. Ex McDonalds has grown by using franchising strategy. Licensing A licensing is an agreement whereby a licensor grants the rights to intangible property to another entity for a specified period, and return, the licensor receives a royalty fee from the license. Intangible property includes patents, inventions, formulas, processes, designs, copyrights and trademarks. Ex Xerox licensed its Xerographic know-how to Fuji Xerox. Joint Ventures A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. Establishing a joint venture with a foreign firm has long been a popular mode for entering a new market. Ex Fuji Xerox was setup as a joint venture between Xerox and Fuji Photo. Management Contracts Contract manufacture involves a formal, long-term contract between parties in two different countries for the manufacture or assembly of a product. The company that places the contract retains full control over distribution and marketing. Ex Western firms that sold their oil refining technology to the firms in Gulf states. Market entry strategy chosen for ITC in South Africa Direct Investment

11|P a g e

South Africa's trade and industrial policy is in the process of fundamental change, moving from a highly protected inward looking economy towards and internationally competitive open economy. The South African government has made progress including: A significant reduction in tariffs No restriction on the type or extent of investments available to foreigners No government approval required on investments The development of an industrial cluster programme Abolition of exchange control on non-residents A proactive strategy to attract foreign strategic equity partners into the process of restructuring state assets and infrastructure The availability of investment incentives.

The government has also established a National Investment Promotion Agency to provide investors with assistance. A number of foreign companies have made investments in South Africa ranging from a simple branch operation through to a complete manufacturing operation. Exporting Direct Exporting Choice of Distribution Channel One of the most important decisions an exporter has to make when entering a new market directly is the selection of the correct distribution channel. The distribution channel is determined by the product. For FMCG, retail chain will be a good option. Retail chain There is a growing importance in the South African market for house brands that are manufactured specifically for a retailer under their own label. Numerous house brands in South African retail outlets are imported. A feature of the South African retail sector is that it operates within a very competitive marketing environment. As a result, a few large groups dominate the retail sector. For example, there are four major retail groups that dominate the foodstuff business, accounting for well over half of the formal retail sector.

12|P a g e

7. CONCLUSION
The discussions on all the perspectives for internationalization of the business like the general reasons, external environment analysis, cultural dimensions, entry strategies, etc. seem favorable and similar to the Indian business environment and strategies. The reasons for internationalization are proactive in terms of strategic expansion of the business. The external environment is conducive and hence, ITC can adapt well with its existing policies. The cultural aspects are in line with the advantages of ITC. Hence, the likelihood of ITC to succeed in the South African market is high, with regard to the demand for stationeries.

13|P a g e

REFERENCES
1. Market research.com. 2012. Books and Stationery Retailing in South Africa. [ONLINE] Available at: http://www.marketresearch.com/Datamonitor-v72/Books-Stationery-Retailing-South-Africa6375117/. [Accessed 15 August 12]. 2. The Economic Times. 2012. ITC's education and stationery SBU making profits. [ONLINE] Available at: http://articles.economictimes.indiatimes.com/2011-07-31/news/29835704_1_chand-daspaperkraft-education-and-stationery. [Accessed 15 August 12]. 3. ITC portal. 2012. ITC Newsroom. [ONLINE] Available at: http://www.itcportal.com/aboutitc/newsroom/press-reports/PressReport.aspx?id=559&type=C&news=Conventional-greeting-cardsurvive. [Accessed 15 August 12]. 4. South Africa - National Statistical Data. 2012. Trading Economics. [ONLINE] Available at: http://www.tradingeconomics.com/south-africa/indicators. [Accessed 16 August 2012]. 5. South Africa - Geert Hofstede. 2012. South Africa - Geert Hofstede. [ONLINE] Available at: http://geert-hofstede.com/south-africa.html. [Accessed 16 August 2012]. 6. GE Global Innovation Barometer : Scorecard - South Africa. 2012. GE Global Innovation Barometer : Scorecard South Africa. [ONLINE] Available at: http://www.ge.com/innovationbarometer/scorecard/country/south_africa.html. [Accessed 16 August 2012].

14|P a g e