International Business in Emerging Economies Report

Introduction

Business environment is becoming competitive due to globalization caused by technological inventions. Firms have come to realize that in order to become competitive in the market they need to go beyond the local markets. This is one fact that management of Haier is well aware of and is planning on how to expand the market share for its refrigerators. There is need to enter into the emerging markets with this product.

One of the most attractive destinations for this product is in South Africa (Pitt 2001, p. 58). This is not only because of the large size of the country, but also because of the massive growth of its economy. South Africa is one of the emerging economies, and the average purchasing power of the people of this country is relatively high as compared to other neighboring countries in the region.

The emergence of the middle class in South Africa means that Haier refrigerators can easily find a huge market in this country. This is especially so in the major cities such as Cape Town and Johannesburg. However, this firm can only succeed in this market if it understands the external environmental forces that will affect its operations while in this country.

The management should also be aware of the internal strengths and weaknesses in order to devise ways of managing the external market forces. This research will analyze the South African market environment.

External Business Environment of South Africa

Cultural, political, economic, and legal aspects of a country make up the external environment of a business. External business environment is very important because it will always determine success or failure of a firm. A business unit cannot survive in a hostile business environment.

According to Cooper (2009, p. 78), external business environment always dictates growth and development of a business. In order to understand business environment of South Africa, PESTEL analysis will be important. This economic analysis tool will help us understand South Africa as a business region, and its viability in supporting growth and development of this firm.

PESTEL Analysis of South African Business Environment

Political Aspects

South Africa is one of the leading democracies in this region. This country became a republic in 1994 from the Dutch. The president is the head of state and government. Politically, South Africa has a very stable government. The country has experienced a long period of political stability that has made it conducive for business. It has a very stable government that is supportive of business operations.

According to Coulter (2009, p. 89), the political environment of South Africa has been very supportive of business operations. This scholar says that the political class has created a clear distinction between politics and business environments. The transitions from one regime to another have been very peaceful, and none has ever had a serious negative effect on the business fraternity since its independence.

Economic Aspects

As was stated above, South Africa has the largest economy in Africa based on Gross Domestic Product. Although the GDP is always very important when analyzing the attractiveness of a country in sustaining a business, the most important factor is always the wealth held by individual citizens. This country is one of the wealthiest nations in Africa in average household wealth. This means that its citizens have strong purchasing power.

This makes the country a very attractive market for firms interested in venturing into it. The report by Davida (2008, p. 78) also shows that this country is rated favorably in purchasing power parity by GDP in this region. This means that wealth of the nation is fairly spread. This increases the purchasing power of the country.

South Africans do appreciate the need to save, but they also spend a good part of their income. It is important though, to understand the fact that this country has also been experiencing economic recession that has been affecting the world from time to time.

The country was affected by the 2009 economic recession that hit the United States and other regions of the world. The South African government came up with various policies immediately the 2008/2009 economic recession ended. The government has endeavored to ensure that the economy of the country do not experience difficulties it faced.

The Socio-Cultural Environment

South Africa has one of the richest socio-cultural environments in the world. Devellis (2001, p. 69) says that South Africa has a very rich cultural heritage that makes it stand out among many other countries. The socio-cultural environment of this country is diversified. This is because this country has people from all over the world. The people of South Africa cherish equality, and women have equal economic strength just as men. In this country, this firm should not segment the market based on gender.

The country has been known for its ideals and declarations of rights of women. Based on religion, this country has several believers who are from different religions. The leading religion is Christianity. However, there are Muslims, Jews, Hindus, and Pagans among other African religions. All these religions have been co-existing peacefully and without any form of friction.

However, each group has its own beliefs that make them unique in the market (Letavec 2006, p. 57). For instance, Muslims do not eat pork. Although their population is not very high in this country, they have an impact in the market. The management of Haier must therefore, be careful when segmenting the market.

According to Clark (2000, p. 650), there is a unique character that makes the South African market different from others. The South Africans generally love leisure. They also like attractive products that symbolize love for life and for others. This is the reason why it is one of the leading markets for flowers in Africa. The country is also very sensitive when it comes to issues about colors. They have cultural beliefs about some specific colors.

Each color has a specific attachment, and is therefore, suitable for different occasions. The Management of Haier must take a keen consideration when choosing colors for its products. This society is also very careful about diction. Every word has a special meaning. As a marketer of Haier, one would need to be very careful with the choice of word used during the promotional campaigns (Nagarajan 2005, p. 29). Any wrong usage of word may cost a firm its market share.

The technological environment in this country is very dynamic. Technological inventions and innovations, especially in the field of communication have been the main challenge and strength of various firms at the same time.

While some firms are left with nightmares of trying to guess what their competitors in the market are going to come up with overnight, some have used this technology to emerge as the leaders in the market. Technological changes are so unpredictable and firms are struggling to come terms with these changes. The dynamism of technology in this sector has forced some firms out of the market.

Legal Aspects

According to Goolnik (2006, p. 56), no firm can operate in an industry that has no clear laws and regulations to help in general governance. Laws and regulations are always enacted to help define the relationship between a firm and the government, a firm and the public, and a firm with other firms.

This law should be clear on various operational issues in order to ensure that operations of one firm do not affect that of another firm. Some governments always enact laws that may motivate growth of one industry, while impeding the growth of another country. Other laws may also be enacted to discourage foreign firms from investing in the country.

The government of South Africa has enacted laws that liberalize the economy. The laws have encouraged growth of the private sector through public-private partnership (Kanda 2011, p. 84). Legally, most firms have not faced major challenges. The laws that govern trade in South Africa have been very favorable to most firms. However, some firms have faced serious litigation cases for failure to follow some of the industry rules and regulations.

Of importance to note is that this country is largely a Christian state. Most of the laws of this land are based on the morals and beliefs of Christianity. For this reason therefore, some businesses practices are not allowed in this country (Binder 2007, p. 84). Failure to follow the industry and national laws and regulation may not only lead to serious fines imposed by the government on the firm, but even a total closure of the firm. Haier should be aware of this.

The government has clearly defined how firms should relate amongst themselves. Such issues as advertisements are closely regulated, with various agencies keenly monitoring content of the adverts. This is specifically so due to two main reasons. The first reason is to ensure that an advert for company A does not have a direct negative effect on products for company B. This is to create a healthy competitive environment where firms have respect for one another.

Another reason for this regulation is viewers of the adverts who are below the age of majority. A standard language should be used when advertising in order to ensure that children’s mind is not polluted with contents meant for adults.

However, given the nature of the product Haier is taking to this market, it may not face any serious challenge from this perspective of the law (Murch 2004, p. 48). The management of Haier only needs to understand how it needs to relate to the government, the public and other firms in this country.

There are some environmental concerns that have legal implications. South Africa is one of the emerging economies in the world. There are environmental agencies that have come out strongly to defend nature from any form of pollution. When operating in this country, the management of Haier should be aware of the laws that are enacted to protect the environment (Barker 2003, p. 89). Contravening these laws may result in litigation against the firm. This can cause serious financial consequences.

Internal analysis of Haier Using SWOT Model

SWOT analysis is always a very important tool that helps in determining the internal ability and weaknesses of the firm, and the opportunities and threats that are available in the external environment. This analysis will help in understanding this firm, and in knowing some of the factors that have propelled it to its current position in the market.

Strengths and Weaknesses of the Company

Haier Company has some special abilities that can be considered its main strength in the market. The ability of this firm to develop a variety of refrigerators of different sizes and for different purposes has earned it a massive ability to target various market segments. To help it succeed in this industry, this firm has come up with a quality control unit in all its subsidiaries in order to ensure that it delivers quality products to the customer (Chiou & Droge 2006, p. 620).

Ability to deliver quality service to the customer has made it develop a special niche in the market making its products popular across the world. The firm is also one of the first firms that embraced value chain management. Through this, the firm has been able to continue satisfying its customers at a reasonable cost.

The ability of this firm to adopt the emerging technologies has been considered as strength by other firms. Haier refrigerator is one of its recent products that demonstrates the capacity of this firm to deliver special satisfaction to its customers by bringing products that are a little beyond the expectations of the market.

Despite the above strengths for this firm, it has some weaknesses that have impeded its growth to a given degree. One of the main concerns that this firm has not addressed properly is the issue of the emerging technologies. LG and Samsung have successfully maintained their lead as the top manufacturers and distributors of refrigerators (Chaudhuri & Holbrook 2001, 89).

The main reason for this was the inability of this firm to adapt to the emerging technologies within the right time. Another thorny issue for this firm has been on environmental management. The components of the products of this firm are known to be very dangerous to the environment. Components of old refrigerators pose a serious threat to the environment. This firm has been criticized, alongside other firms, to be leading in the pollution of the environment.

This firm is yet to come up with a clear structure on how it can manage environmental pollution caused by its wastes around the globe (Bruning 2002, p. 41). The firm has claimed that it has been engaging in corporate social responsibility. However, this has not been enough to make the public believe its commitment to a cleaner environment.

Opportunities and Threats

In every industry, there are always opportunities and threats that a firm may come across in the external environment. Various opportunities exist for Haier in its operations in the South African market. One of the opportunities that this firm has had is an expansive and unexploited market in the third world countries.

Most of the electronics firms have focused their effort on building a large base of loyal customers in the leading economies like the United States and the European markets (Andrzej & Buchaman 2007, p. 98). This firm has managed to tap into the emerging markets in African and parts of Asia. The stable economic growth in the emerging economies means that there is increased opportunity for this firm to increase its sales in such countries as the South African markets and the neighboring regions.

This growth of economy means that the consumers will always have enough to spend on luxurious goods such as the expensive Haier refrigerators. The market has developed an interesting trend where this firm is competing with Samsung for the market share of the refrigerators. The market has been experiencing a stiff competition between Haier refrigerators and Samsung refrigerators (Sirkin & Jackson, 2005, p. 18).

Although this may be considered as a threat, this competition has offered the two firms an opportunity to acquire a special niche in the industry, outsmarting some of the former industry giant like Sanyo. The emergent of an economically empowered youth around the world is also another opportunity that this firm has been able to exploit. In the IT industry, the main target market is the youth. With an economically empowered youth, this firm can generate many benefits through increased sales.

There are threats that exist in this industry that is worth noting. Technology is probably the main threat that this firm faces in this industry. Haier has used technology to reach its current position. It has managed to adapt to the emerging technologies at a gradual rate (Doladi 2007, p 218). However, it is a frightening trying to figure out what some of the competitors can do with this same technology.

Any slowness in managing the emerging technologies can pose a serious threat to this firm. Another biggest threat that this firm faces is the stiff competition posed by rival firms. This industry is one of the most competitive industries in the world. Any slight mistake by the firm may result in a situation where its market share is taken over by other rival firms.

Market Entry Mode

According to Bird (2007, p. 221), it is important for a firm to have a clear strategy that it intends to use when getting into a new market. Haier should understand that the market forces in its home country are different from the forces in South Africa. It should find the best way through which it can get into the South African market with as minimal challenges as possible (McCarthy 2010, p. 36). One of the modes of entry can be direct market entry into this market.

In this strategy, the firm will need to register with the relevant authorities is South Africa and start its operations in this country as an independent firm. Another alternative is to find exclusive distributers of its products in the market. In this approach, it will only need to coordinate with these distributers and supply them with its products.

The distributers will be responsible for sale of the refrigerators in the South African Market. Alternatively, this firm can get into partnership with a South African firm in the electronic industry. With this partner, this firm can introduce its refrigerators into this country. Given the nature of this product and the level of market competition, direct market entry mode would be the most appropriate.

The Organizational Strategy for the Entry

Direct market entry Strategy is appropriate because it would enable Haier to deal with the competition posed by competitors in a direct manner. To do this, the management of Haier should develop organizational strategy for this entry. The first step should be analysis of the market prior to the entry. This will enable the firm to understand what is needed in this market. After the survey, the management should form a team that will be responsible for managing this market (Bardes 2008, p. 187).

This team should only include top managers because it would be appropriate to have host country nationals for other positions. The team should then develop market entry strategy that would help create a positive image of this firm in the market. This team must develop appropriate market proposition that would give it an advantage over its competitors. This may include positioning itself as an electronic firm that is environment friendly, besides being conscious of environmental forces.

Human Resource Management Strategy

According to Banutu (2004, p. 145), it is very important for the management of a firm to come up with an appropriate human resource management strategy when entering a new market. There are four options that Haier can use when staffing its new plant in South Africa. The first option may be to use parent country nationals, which would mean that it would come with employees from China.

The second option is to have host country nationals meaning that it will hire South Africans at this new plant. The third option is to use third country national, which means that it will hire employees from other countries other than China and South Africa. The last option, which is the most appropriate, is to have a mix of the three strategies (Kousholt 2007, p. 37).

Haier will employ top management from any other country, while junior employees would come from South Africa. Employing South Africans will help this firm in marketing because these employees already have an understanding of the market environment. These employees should be kept constantly motivated to ensure that they give out their best.

Environmental Issues and Corporate Social Responsibility

When the management has successfully made an entry into this new market, it would need to develop a positive relationship with the public. Gaining favorable public image would require this firm to engage in various activities that would endear it to the public. Corporate social responsibility offers a firm an opportunity to work with the public for the betterment of the public other than to generate profits for the firm (Baekdal 2006, p. 54).

Given that the society has become very sensitive on issues concerning the environment, the management of Haier should consider engaging in activities focused on protecting the environment. This may include planting of trees, getting rid of electronic and plastic wastes from the environment or such other similar activities. This will help give a new positive image for this firm in the market.

Conclusion

It is apparent from the discussion above that Haier can make a successful entry into the South African market with its refrigerators. South Africa is one of the emerging economies in the world and it is one of the most attractive markets for this firm. However, Haier needs to understand the external environmental forces it may face when operating in this country. It needs to understand socio-cultural environment, political and economic factors of this country that may affect its operations.

This firm may also need to understand its internal strengths and weaknesses that may affect its operations in this country. Direct market entry into the South African market is the most appropriate approach for this firm, and most of its employees, especially the mid-level managers and junior employees should be South Africans. Participation in corporate social responsibility will give this firm a good image in this new market.

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