Introduction sales and profits (Kaplan & Menzio, 2015). South

 

 

 

 

 

 

 

 

 

 

 

Introduction

 

This essay, will
critically analyse one economic, political and social issue that will be likely
to influence a company’s engagement in international and global marketing. The
issues that will be covered are unemployment rates, trading regulations and
access and lastly a cultural issue related to dress codes.  

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Economic
Issue

 

High levels of unemployment is an
economic factor that can be associated with negative implications. For example,
consumers who are unemployed tend to have  lower levels of disposable income (Antonelli & Cannon, 2017). This can
influence consumer’s spending power and patterns (Carbone, 2004). As a result,
company’s may not be able to reach their full financial potential thus,
resulting in a reduction in sales and profits (Kaplan & Menzio, 2015). 

 

South Africa (SA) is an emerging market, who owes its economic progression
to the mining sector (Leon, 2015). Although they have a vast amount of mineral
wealth, South Africa is experiencing high levels of unemployment of approximately
25% whilst youth unemployment is approaching 50% (Gumede & Mbatha, 2017). In
line with this, H (a fashion retailer based in Sweden) is an example of a
multinational corporation who are utilising this economic implication by taking
the opportunity to expand their market presence within SA. H identified the
absence of “value” retailers, therefore decided to invest in SA with the help
of investors to create a demand for affordable, stylish clothing at lower
prices due to their low level of disposable income (Bloomberg, 2017).

 

Figure 1 showing the Uppsala model (Johanson
and Wiedersheim-Paul, 1975)

 The Uppsala model (Johanson
and Wiedersheim-Paul, 1975) propose that organisations initially
enter nearby markets with low market commitment. This can be aligned with
H, who gradually became global retailers by internationalizing in stages
(HM Group,2014). Therefore, it can be claimed that H
were able to enter the South African market and expand through their
traditional and existing global strategies from their previous entries (Faku,
2015). However, the model claims in order for
internalization to occur companies must complete each step and expand based on
closer geographical distance to gain knowledge of nearby countries. Cho and Jin
(2015) propose that the model fails to acknowledge how technology such as the
internet can speed up the process of internalization and skip stages through
online research and communications. This enabled H to make a few substantial changes to their strategies such as pricing and
style through market research using the internet, other resources and capital
(Faku, 2015).

 

By 2028,
South Africa is estimated to have a total Gross Domestic Product output of
US$810.6 billion (Gumede and Mbatha, 2017). This suggests that businesses in South Africa will be able
to afford to employ more individuals and increase wages to create a larger
spending power for consumers. The South African government vowed to lower unemployment
rates to 14% by 2020 and 6% by 2028 (Gumede
and Mbatha, 2017). However, Reports show that the unemployment level is projected to increase
to 28.5% before decreasing to 22% (Statista, 2017). In
the meantime, H should concentrate on increasing brand awareness through
promoting their clothing as affordable. In addition, H should focus on expanding
their outlets and locating space to increase their availability and visibility.
Low-income consumers are less likely to frequently purchase clothing hence,
H should offer a promotion that gives customers the incentive to return
such as a discount on their next purchase and maintain their current low
pricing strategy to increase brand loyalty and fend of completion extremely
low price fashion retailers Primark (Financial Times, 2017).  

 

H could
also shorten their supply chains by manufacturing within South Africa to create
employment which can also enhance their brand reputation by helping the South
African economy to become more sustainable. Although H will not generate huge amounts of sales
within the next 3-5 years it can be seen as an investment for the long term
when employment starts to increase (Ram, 2017). An increase In employment rates
can increase the level of disposable income, giving consumers a larger spending
power. In relation to H, an increase in consumption in South Africa can
also increase H’s sales and profits whilst increasing their value of
individual stocks.