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Market Entry Strategy The entry mode we choose is joint venture.

The reasons of choosing joint venture:

1. Investment policy of SA

The SA government encourages direct investment by non-resident persons and companies. There are, generally, no restrictions on the type or extent of investment available to foreign investors in the SA economy. Restrictions would usually relate to a particular industry and be applicable to both residents and non-residents. [1]

Foreigners were welcome, even encouraged, to establish businesses in South Africa, and they could qualify for numerous government concessions and subsidies. Few legal restrictions were imposed on the economic activities of foreign nationals in South Africa, aside from stringent exchange controls on the repatriation of capital funds. [2]

Joint venture is inherently flexible and offers the foreign investor many advantages, which setting up business alone in SA cannot do. There are no restrictions on the extent of ownership by a foreigner in a joint venture enterprise. International joint ventures represent a significant proportion of international operations in SA.

2. Economic environment of SA

In recent years, SA economy is expected to grow at a moderate pace, in the neighborhood of 3-4% per year, which has enabled the continuing expansion of a black middle class with significant discretionary purchasing power. And naturally GDP growth has benefited from increasing demand for metals and minerals from Asian economies, especially China. [3] Moreover, a large part of recent economic growth is drove by the increasing consuming power. Consuming spending, at 61% of GDP, is high relative to many other emerging countries and i likely to

remain so for many years. To further, the tourism and retailor market could be benefited from the moderate growth. However, retailers in South Africa do not achieve economies of scale, while consumers do not receive lower prices.

3. Market potential of SA

South Africa has a considerable size of market with nearly 50 million people and the consumer spending has grown faster than GDP in last few years. A rise in the spending power of black consumers is boosting key retail sectors. A 2004 report by the Financial Mail says motor vehicles, furniture, clothing, media, property and cellphone retailers are all benefiting from South Africa's new "buppy" class. And in the second quarter of 2006 the wholesale and retail trade, hotels and restaurants sector grew by 6.1%, contributing around 1% to GDP. [4]

4. Ahold's plan for future expanding

Ahold has signaled intent with plans for growth in online and convenience sales, plus further expansion in Belgium. Adding up to 150 new convenience stores in Europe forms a major part of the plan, while it is hoped that the modernization of its Giant and Stop and Shop supermarkets in the US will boost its performance there and help it to achieve 40 per cent penetration of its brand.

The company is also set to continue expanding its online grocery operation, targeting sales of 1.5bn by 2016 compared with around one-third of that figure at present.

Ahold will also step up its efforts to grow in Belgium as well by extending its existing network of two stores to at least 50 over the next five years. [5]

5. Ahold's experience of oversea business

Ahold is a rapidly growing international food retailer with leading supermarket operations in the United States, Europe, Latin America and Asia. Annualized sales worldwide amount to approximately USD 35 billion. Although Ahold has very successful experience in Europe and US, its performance in Asian was dissatisfied. In 1999, Ahold divest from the loss making parts from Asian because of the insufficient economies of scale and the need for considerable new investments over a longer period of time. Furthermore, Ahold has no relative experience in African countries.

6. Ahold's firm size

Firms need asset power to engage in international expansion and to successfully compete with host country firms. Resources are needed for absorbing the high costs of marketing, for enforcing patent and contracts, and for achieving economies of scale. [6]

In concluding, South Africa has positive economic situation and investment environment with stable GDP growth and increasing consuming power, it's possible for Ahold to take high control mode to entry SA market which expected to provide long-term profitability to Ahold. However, due to lack of experience in African countries, it's likely to have problems in managing foreign operation. So it's suggested to entry SA market with joint venture strategy. There are two companies we can choose to cooperate with:

Shoprite Holding: Shoprite is a South Africas largest food retailer and has about 34 percent market share of the food retailing market. Shoprite caters to the broad middle to lower-end of the consumer market with a focus on private label or branded products on food for their more priceconscious consumers. The group consists of about 1,800 outlets in South Africa and throughout

Southern Africa (Angola, DR Congo, Ghana, Mozambique, Namibia, and Zambia) Nigeria and India. The retail formats and store brands are comprised of Shoprite supermarkets, Checkers Supermarkets, Checkers Hypers, Usave stores, distribution centers supplying group stores with groceries, non-foods and perishable lines, OK Furniture outlets, OK Power Express stores, House & Home stores, and Hungry Lion fast food.Through its OK Franchise Division, the Group procures and distributes SKUs to the OK Minimark convenience stores, OK Foods supermarkets, OK Grocer stores, Megasave wholesale stores, Sentra stores, and Value Stores. Shoprite Holdings with its Checkers brand remain the sole player in the hypermarkets in South Africa. Checkers Hypers have a special section devoted entirely to imported foods as well as kosher and halal sections. Checkers Hyper chain targets middle to high-income groups. Shoprite Checkers are similar to a Shoppers Food Warehouse type of shopping experience. Shoprite Head Offices are based in Cape Town, South Africa[7]

Metcash: Metcash Africa is the largest distributor of groceries and fast moving consumer goods (FMCG) on the African continent. It has extensive franchise retail interests in South Africa and operates in other African countries (Malawi, Namibia, Lesotho, and Swaziland,). The brand stores include Metro Cash and Carry, Trade Centers, Liquor World, Stax, Friendly Warehouses, Alliance Cash & Carry, Seven Eleven, Lucky Seven, Buy Rite, Viva-Supa-Save, and Pop-In, with private labels such as (Family Favorite, Astor, and Golden Circle). Metro liquor stores such as Liquor World and Liquor Warehouse offers consumers a range of imported liquor are conveniently located next to Trade Centers and Metro Cash and Carry outlets. [7] Advantages and disadvantages of JV [8] Advantages of joint venture:

Provide companies with the opportunity to gain new capacity and expertise Allow companies to enter related businesses or new geographic markets or gain new technological knowledge

access to greater resources, including specialized staff and technology sharing of risks with a venture partner

Joint ventures can be flexible. In the era of divestiture and consolidation, JVs offer a creative way for companies to exit from non-core businesses.

Companies can gradually separate a business from the rest of the organisation, and eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the other.

The Disadvantages of Joint Ventures

It takes time and effort to build the right relationship and partnering with another business can be challenging.

There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners.

Different cultures and management styles result in poor integration and co-operation. The partners don't provide enough leadership and support in the early stages.

Reference 1. CUTS, 2003, Investment Policy in South Africa Performance and Perceptions 2. http://www.mongabay.com/reference/country_studies/south-africa/ECONOMY.html 3. Hidden heroes-Next generation of rerail market, planet retail, www.planetretail.net 4. http://www.southafrica.info/about/416221.htm#ixzz1jQj26u1I 5. Ahold outlines plan for future expansion, http://www.fruitnet.com/content.aspx?cid=12738 6. Hood.N, Stephen.Y, 1979, the economics of multinational enterprise, London, Longman Group Ltd 7. USDA Foreign Agricultural Service, 2011, South Africa retail foods 2010 Annual retail food sector report 8. http://www.rpemery.com/articles/advantages_and_disadvantages_jv.htm