Leading Consumer Electronics Business Organizations

Eighty five years in the Middle East
Leading Consumer Electronics

business organizations
Maximizing growth
opportunities in Africa
Contents
Introduction
Economic outlook
Business environment
Best practice
Key localization strategies
South Africa case study
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4 | Leading Consumer Electronics Business Organizations | Maximizing Growth Opportunities in Africa
Introduction
In line with the globalization paradigm, Africa has
become the new business destination for many
consumer business multinationals over the last 10 years.
It is considered as one of the most opportunistic markets
and in recent years has seen entrance from some of the
largest multinational firms worldwide. A key strategic
question asked by many firms is how to best enter the
African market. Hence, considering the economic and
social challenges facing the African continent, this paper
attempts to elaborate on the key principles and strategies
that successful vendors are exploiting and key challenges
they have encountered along the way.
This paper begins with presenting a macro analysis
of the economic indicators of the region followed by an
overview of the business environment in Africa. Best
practices from different aspects of business is the topic of
the next section helping decision-makers devise optimal
ways to exploit the available opportunities in Africa.
The paper concludes with a number of key localization
strategies, which can be considered and employed by
leading consumer electronics multinationals.
In line with the globalization
paradigm, Africa has become the
new business destination for many
consumer business multinationals
over the last 10 years
Maximizing Growth Opportunities in Africa | Leading Consumer Electronics Business Organizations | 5
Africa is amongst the fastest
growing economies in the world
and an attractive destination for
consumer business multinationals
Economic outlook
Africa is amongst the fastest growing resource-rich
economies in the world with a total GDP of US$1.7
trillion in 2010 and offers relatively promising medium
to long term growth prospects.
Regional pursuits of major economic reforms, combined
with higher government spending and strong foreign
investments (particularly from China) have resulted
in economic growth and strong recession recovery.
Recent trends indicate that growth is increasingly
driven by a burgeoning domestic market which is
assessed to become the largest outside of India and
China. In addition, recently Africa has become a major
focal point for international initiatives (i.e. G8 summit,
Nepad and the IMF) through various programs
promoting macroeconomic stability, structural reforms
and privatization despite major challenges
(i.e. corruption, weak institutions and political instability).
-5.0
0.0
5.0
10.0
15.0
2004 2005 2006 2007 2008 2009 2010 (e) 2011 (e) 2003 2002 2001 2000
China India Africa Brazil US Europe
Figure 2.1 illustrates Africas steady but strong growth rate in comparison to other developed and emerging economies. Due to
the challenges still facing Africa, China and India are forecasted to exhibit larger growth rates, while Africa remains
closely behind reaching a forecasted growth rate of 5% by 2011.
Figure 2.1 - Real GDP growth, 2000-11 (in %)
Source: Africa Economic outlook 2010
In recent years, prior to the global crisis, international
trade had been increasing rapidly. Africa only comprises
3% of the worlds exports. As such, a key objective for
Africa will be to continue attracting investors beyond
the profitable exploration of natural resources.
0
500
1,000
1,500
2,000
2,500
3,000
2014 (e) 2013 (e) 2012 (e) 2011 (e) 2010 (e) 2009 2008 2007
1
.
3
0
8
1
.
5
4
6
1
.
4
8
5
1
.
7
0
5
1
.
8
5
1
2
.
0
2
7
2
.
2
1
8
2
.
4
2
3
Figure 2.2 highlights the African GDP forecast from 2007-2014. In 2009, total GDP for the
African continent reached USD1.5 trillion. In comparison, Chinas GDP was US$4.2
trillion and the US amounted to USD14.2 trillion.
Regional integration initiatives
Africa currently has 15 trade agreements which
has helped boost intra-trade significantly in the region
by introducing tariff reductions, and generally helping
the flow of goods across borders. SADC (South African
Development Community), which comprises over 50 %
of all intra-regional trade may join COMESA (Common
Market for Eastern & Southern Africa) to help spur
regional trade by eliminating all tariffs between these
two regions. 40% of total intra-regional trade is
comprised of manufactured goods illustrating
opportunities for produced and assembled consumer
electronics within the African region.
Figure 2.2 - Africa continent GDP, 2007-14 (in Billion US$)
Source: IMF
Main trade
agreements
AMU
ECOWAS
EAC
SADC
COMESA
ECCAS
EU
Nigeria
South Africa
Even with the current progression of the trade
agreements, intra-regional trade still only accounts
for 12% of total trade in Africa. Additionally there
are still only a few countries that dominate intra-trade,
including South Africa and Nigeria. This point highlights
that government inefficiencies still remain strong
within the region.
Demographic transformation
Africa's population is estimated at 997 million in 2010.
This is considered relatively large in comparison to other
regions, such as Europe with a population of 831
million. Nevertheless, Africa is beginning to experience
a demographic transformation highlighted by declining
birth rates, which is a well-known indicator for regional
development. This decline in infant fertility is mainly an
urban phenomenon and is significant in some of the
more developed African countries (especially in Tunisia,
Morocco and South Africa). Since 1950, Africa has
experienced a growth rate ranging from 2.2% to 2.8%,
in comparison to the global average of 1.4% to 1.7%
during the same period.
Africas total population is expected to witness a 2%
growth between 2010-2014. Nigeria, Egypt and
South Africa are amongst the most populated African
countries, while Kenya is amongst the fastest growing.
Figure 2.3 - Main trade agreements
Figure 2.3 illustrates the complex network of regional agreements that have begun to overlap.
Source: GTZ
Despite the progress made over the last 10 years
including many investment initiatives launched by
NEPAD-OECD, and others, the business environment
in Africa is still quite underdeveloped.
One of the most problematic issues for doing business
in Africa is the power shortages which can considerably
increase operating costs. In some countries such as
Nigeria, power disruptions are witnessed daily and can
account for losses of up to 10% of sales. Other more
developed regions such as South Africa experience
power shortages less frequently, however costs can
still account for up to 1-2 % of sales.
Macroeconomic instability within the region remains
a concern for the overall business vitality. Other concerns
for developing countries in Africa are the low
administrative capacities, corruption and poor tax
systems that can seriously affect economic development.
Another challenge facing consumer business
organizations entering Africa is the lack of skilled labor
within the region, stemming from the low level of
higher education. Some major challenges include poorly
educated teachers, weak teacher unions and the large
number of school dropouts. Efforts from institutions
such as the Global Business School network are helping
raise the level of education; however there still remains
an insufficient skilled work force.
Main business challenges comprise
of macro-economic instability,
under-developed infrastructure,
low administrative capacities and
lack of skilled labor
The above figure illustrates that parameters such as
inflation, corruption, social capital, unemployment
rates,and infrastructure clearly lag behind. Among the
sampled countries selected, Nigeria has the lowest
maturity of business environment followed by Kenya,
Egypt and South Africa.
As illustrated below in Figure 3.2, the television
penetration rate in Africa stands at around 40%
or less than half the rate of Europe. Similarly,
the Internet penetration rates, estimated at 5%
are considerably lower than Europe and China;
indicating growth opportunities in this sector.
South Africa, Tunisia and Morocco are amongst
the leading countries in terms of ICT penetration
across Africa.
In 2008, FDI inflows rose to a record USD88 billion
despite the global crisis. North Africa attracted 27%
of total FDI while the remaining sub Saharan countries
attracted 73%. The largest portions of these contributions
have been received by all the North African countries,
South Africa, Nigeria and Angola. In 2008, companies in
China accounted for US$5.6 billion value in cross border
M&As and purchases.
The main driving forces behind FDI are the need for
resources and creation of new markets for products.
A recent survey among Chinese private investors
indicated that their FDI investments are market driven".
Chinas interest in the African continent is no longer only
within natural resources; the growing entries of Chinese
companies are beginning to spread across all sectors of
the African economy.
Egypt
South Africa
Kenya US
Nigeria
Education
Economic
Fundamentals
Entrepreneurship
and Innovation
Democratic
Institutions
Governance
Personal
Freedom
Social Capital
Health
Safety & security
100
80
60
40
20
0
38%
96%
89%
42%
Internet penetration TV Penetration
Europe China Africa
29%
5%
Figure 3.1 - Business environment comparison
Source: Deloitte research and analysis, 2010
Figure 3.2 - ICT enviroment, 2009
Source: Legatum prosperity index 2009
Figure 3.1 compares the business environment ranking in key markets, compared to the US.
Shifts in consumer spending patterns
Leading indicators including the GDP per capita,
urbanization rate and the growth of the middle class
show a shift in African consumer spending towards
more sophisticated goods. However basic spending
still accounts for up to 50% of total consumption.
GDP per capita in Africa is expected to grow at a rate
of 8%, fueled by an expanding workforce and labor
productivity. The urbanization rate, which is closely
related to economic development, is growing at an
estimated 4% in countries such as Kenya indicating
that by 2025 cities in such countries will have doubled.
The emerging middle class in many African cities and
the rise of the so-called Afropolitans (cosmopolitan
African group) have had an impact on the consumer
lifestyle and behavior which has begun to target
branded Western goods. This trend has been
facilitated by the rise of credit facilities.
The majority of Africa's emerging middle class
consumers are found in South Africa, while others
include Zambia, Nigeria, Kenya, Ghana and French
speaking North Africa.
An emerging middle class, and the rise
of the Afropolitans (cosmopolitan
African group) have significantly
changed the lifestyle and purchasing
behavior of African consumers
Europe Africa
Rural Urban
73%
27%
40%
60%
Figure 3.3 shows that Africa's urbanization rates are still
lagging behind developed regions.
Source: Euromonitor
Figure 3.3 - Rural vs. urban population, 2010 (in %)
Figure 3.4 illustrates that just under 50% of African household income is considered as discretionary and the remainder falls under
basic needs.
Developed markets
Some markets in Africa have experienced a shift,
resulting in more sophisticated spending patterns
that can account for up to 50% of total spending
on superior/luxury goods. These markets include
the majority of North Africa, such as Tunisia, Algeria,
Morocco and Egypt, as well as other economies such
as South Africa. Consumers in these markets are
dominated by a young population who are influenced by
European tastes and product specifications. Additionally
these markets are also associated with higher ICT
penetration rates, which indicate a more knowledgeable
and exposed consumer segment.
In South Africa, spending is expected to grow by 8% in
the coming five years, fueled by the increased spending
power of the emerging black middle class ( the so-called
black diamondphenomenon).
Home furnishings and home improvements are the big
beneficiary of the black diamond phenomenon, leading
to greater sales of consumer electronics as well.
International vs. local brands
The evolution of consumer behavior can be exemplified in
the recent shifts in product demands within the consumer
electronics industry. Examples include the shift from twin
tub to top load washing machines, from CTV to LCD
screens and the shift from local to international brands.
Within the African markets, local brands (such as
Algerias Condor, Egypts Kiriazi, Nigerias Zinox and
South Africas Defy, KIC and Sahara) still maintain strong
market shares and continue to rely on consumer loyalty
and strong price positioning. However, more and more
of the international brands are entering and expanding
in Africa successfully by introducing new products and
services through concentrated advertising campaigns
that are attracting new demand and changing consumer
behavior patterns.
Income Level % US $
Basic needs 24 < 2,000
33 2,000 - 5,000
Discretionary
income
21 5,000 - 10,000
14 10,000 - 20,000
8 > 20,000
Figure 3.4 - Share of total Africa households by income bracket (in %)
Source: Euromonitor
The African consumer is now more knowledgeable
about product specifications and is aware of
the international standards including technical quality
and energy efficiency performance. Local brands are
often unable to offer a similar range of products as
their international counterparts. Some of the major
challenges facing international brands, include:
lack of strong relationships and networks, aggressive
price competition from local brands, as well as inability
to manage and control the large informal markets.
Local marketing initiatives
A key success factor for leading vendors in Africa
has been aggressive marketing initiatives which
have successfully increased brand awareness and
consumer perception.
Most African consumers associate the strength
of a brand with the strength of its advertising
and marketing activities. Consumer business market
leaders have invested heavily in building brand
presence/visibility through integrated campaigns
and marketing mix programs, including: TV, radio,
magazine, adverts, billboards, signage, demos,
giveaways, warranty extension, POS and others.
The recent World Cup in South Africa boosted
the annual marketing budget of the consumer
electronic giants. However, the underdeveloped
state of the communications media and education
levels in most of the countries makes it challenging
to reach consumers with specific product messages
on a constant and uniform basis.
Most African consumers associate the
strength of a brand with the strength
of its advertising and marketing
activities
Stone window display Showrooms
Store - witnin-store

Billboards Signage
News paper/
magazine adverts
Source: Deloitte research and analysis
Figure 3.5 - Advertisement tools
Figure 3.3 illustrates the most common advertising and marketing tools and activities used by leading vendors in Africa.
Best practice
How to maximize growth opportunities in Africa?
This section identifies the key success factors and
challenges for expansion into the African region under
the different aspects of undertaking business activities.
Organizational structure
One of the most challenging aspects facing leading
consumer electronics vendors in Africa today is how to
effectively cover the diverse regions with the optimum
organizational structure. To begin with companies
need to identify the most strategic location for the
regional headquarter in Africa. Most models suggest
that Dubai is the preferred location to use as a regional
MEA headquarter.
In some regions such as Eastern Africa and specifically
Kenya, Dubai is considered as a cost efficient logistics
hub since many African resellers have offices,
warehouses and trade links with Dubai. Alternatively,
South Africa is also considered a good strategic location,
which can serve as a good export hub particularly
for SADC.
Most of the leading vendors have undergone
an organizational restructuring in the last two years,
increasing their local presence in the region
by converting existing representative offices into
subsidiaries which report to a regional headquarter.
Trends show that the strategy of some industry leaders
is to penetrate Africa through four main regional hubs,
including: Morocco serving the Maghreb, Kenya serving
Eastern Africa, South Africa serving the SADC and
Nigeria serving Western Africa.
On average leading vendors have between 5 to 10 local
offices within the region. The largest markets,
such as Egypt, South Africa and Morocco are also
usually associated with more employees working out of
the local offices. Some of the markets do not allow for
a large local presence due to infrastructure and business
risk concerns, such as: safety and security, poor internet
and land line connections, transport and power issues.
A key challenge facing leading
consumer electronics vendors in Africa
today is how to effectively cover the
diverse regions with an optimum
organization structure
14 | Deloitte GCC powers of construction 2010 | Building the future and growing stronger
Roles and Responsibilities
The general trends for the regional HQ are to take
responsibility for setting marketing budgets and assisting
with sales forecasts. Marketing campaigns are carried
out through the local offices and generally customized
to meet country market specifications. After sales service
and logistics are also catered by the local teams. In
addition, it is worth mentioning that industry leaders
increasingly set up learning centers to ensure best
practice sharing in the region.
Figure 4.2 illustrates the main functions of regional HQs and
local offices.
Regional HQ Local ofces Figure 4.2
Sales Forecasts
Logistics
Pricing
Marketing
After sales services
Product planning
Responsible
Responsible
Responsible
Responsible
Both
Both
Informed
Informed
Informed
Responsible
Responsible
Responsible
Morocco
Local Ofce
Geographic Coverage
HQ
Egypt
Kenya
Dubai
Nigeria
South Africa
Figure 4.1 The key markets are marked with a local office to highlight the strategic
importance of having local presence in these countries. The arrows show
the coverage that can be utilized and captured from some of the key markets.
As an example, South Africa can be used as a hub for export of products
and control over the SADC region, while Kenya can be used as a hub serving
the Eastern Africa region.
Figure 4.1 - Optimum local presence
Figure 4.2 - Main functions of regional HQs and
local offices
Sourcing and assembly options
One of the key challenges vendors face in keeping
end prices competitive is the varying import tariffs.
The major import regions all have varying tariff rates
depending on trade agreements and relations with
the respective country. Therefore it is advantageous
to manufacture and import either locally or from
strategic locations.
General tariff CKD/SKD
South Africa

25% 0 - 10%
Key markets
30% 5 - 10%
Nigeria

35% 5 - 10%
Morocco

25% 0 - 10%
Egypt
Figure 4.3 highlights the gap between general import duties and CKD (Complete Knocked Down)/
SKD (Semi Knocked Down) import taxes of consumer electronics goods in South Africa,
Egypt, Nigeria and Morocco.
Figure 4.3 - Import duties vs. CKD/SKD duties (in %)
Local manufacturing: benefits and challenges
Benefits
Elimination of shipping costs
Avoidance of exchange rate risk
Reduction of time to market
Support of local communities
(hiring of local people)
Reduction of parallel imports
Challenges
Political instability
Ever-changing government regulations
High corporate taxes and labor wages
Restrictive local regulation
Adopting CKD/SKD will bring benefits such as reducing
product cost significantly for local and neighboring
markets. It will also bring serious challenges especially
in countries with stricter government regulations.
As an example, in 2009, Algeria obliged all foreign
investors to meet the complimentary finance laws which
include a 49/51 mandatory investment share with an
Algerian investor. Also, in most of the countries, vendors
are required to reach a minimum integration rate in
order to realize the lower import tariffs.
Distribution and channel trends
Overall, the market channels within Africa are relatively
underdeveloped and mainly led by traditional and
informal retail formats such as table-top sellers in
open markets, roadside shops and street hawkers.
These channels could sometimes account for more
than 85% of trade volumes within specific consumer
electronics categories. Informal retailing is expected
to remain as one of the strongest channels in the short
to medium term (up to five years). This is mainly due
to the social, cultural and economic challenges that
support informal retailers in cities and villages across
the continent.
Modern (formal) channels such as hypermarkets,
electronic specialists and brand specific showrooms
are still scarce in most African countries and are mainly
present in the more advanced markets such as South
Africa and Tunisia.
The hypermarket concept has substantially changed and
shaped new consumer habits by providing better after
sales services and product guarantees, free delivery
schemes and in-store financing. Old-style retailers are
expected to lose attractiveness in face of aggressive
competition from hypermarkets. Moreover, showrooms
have still not fully materialized and account for marginal
share of channel sales. They are mainly seen as a strategic
investment to increase market visibility.
Overall, positive indicators show that formal retailing
penetration rates are excepted to rise in line with
projected growth in the labor force, urbanization, and
emerging middle class consumers in Africa, in particular
in its less developed parts.
Parallel markets
The African market presents distributors with the
challenge of dealing with parallel markets and the need
to form strategies in order to effectively manage them.
Parallel markets develop where goods are sold outside
of their authorized channels of trade. Generally this
market exists because price differentials exist in how
goods are sold in different markets. The biggest issue
with this market is that the manufacturers distribution
arrangement and their ability to control quality within
the distribution process become undermined.
Parallel markets exist within all African countries but
to varying extents North Africa being one of the worst
affected due to its close proximity to Europe. The more
developed markets of South Africa and Egypt are
affected to a lesser extent and have a greater majority
of legitimate imports thanks to the direct local presence
of manufacturers on the ground.
Traditional/ informal retailers and
outlets are expected to lose
attractiveness in face of aggressive
competition from hypermarkets
Key localization strategies
Establish local offices
The presence of local offices is essential in order to meet
specific in-country needs. Successful implementation of
marketing, sales and distribution strategies are directly
dependent on the ability to understand the needs of
local consumers and having a good grasp of factors
driving market conditions. Local knowledge can also
be effectively gained from employment of local staff.
Set up local assembly plants
Establishment of local assembly plants (SKD/CKD) will
allow for effective positioning over price. It also translates
to faster times to market and more flexibility for reacting
to changes in demand and competitor strategies.
Invest heavily in marketing
Successful marketing campaigns can help increase
brand awareness and positively change consumer
perception of the product offering. Penetrating local
markets without adequate marketing investments can
prove difficult due to the strong presence of cheaper
local brands and heavy investments of other leading
brands , such as the giant Koreans.
Utilization of local staff
Employing experienced local management and staff is
seen as a major advantage, considering the importance
of existing relationships/ network of contacts and
requirement for having an understanding of the local
customs and behaviors, unique ways of doing business
and negotiation tactics.
Engage in direct distribution
Leading vendors are increasingly distributing directly to
end-users, particularly to the modern retailers, corporate
and government entities, while using wholesalers/official
distributors for reaching the vast outlets in the
traditional channels.
Complex and indirect distribution models lead to
inefficient supply chain management and additional
costs. Within local markets vendors are able to bypass
local distributors and reduce costs only when they
have a strong local team with sophisticated networks
across all channel types. It is important to note that
sales into B2B/ tendering are sometimes required to
take place through official distributors.
Build strong local partnerships
Strategic partnerships with local entities can help in
establishing a quick foothold by leveraging existing
capabilities, relationships and contacts.
Establish
local ofces
Develop
Show rooms
Localization
Strategy

Invest Heavily
in marketing
Build up of Strong local
partnerships
Setup local
assembly plants
Engage in a
direct distribution
Figure 5.1 - Key strategic initiatives
Figure 5.1 identifies some of the key strategic initiatives that are needed in order
to effectively penetrate the local markets.
Leading vendors are increasingly using
a direct approach for distribution to
end-users, particularly to the modern
channels, corporations and government
entities
Dedicated Africa operations
Localization and customization of products have been a
key element towards a successful African expansion
strategy. Vendors have achieved this through acquiring
knowledge and understanding of local markets,
establishment of research and manufacturing/assembly
facilities, implementation of local marketing initiatives
and development of dedicated Africa operations teams.
Future trends indicate that regional strategy and
operations for leading vendors will increasingly be led by
African-based teams and dedicated stand-alone
organizations. If vendors want to succeed in Africa, they
will need to treat it as an independent market through a
dedicated business unit, with an on the ground presence,
supported by a regional management team operating
from a local headquarter.
Poor credit and financing facilities limit
the purchasing power of both
distributors and consumers
Opportunities
Cost and time to market
Local production reduces logistics costs and associated
custom duties and allows the vendors to realize faster
delivery times and faster reactions to changes in
consumer deman d patterns.
Brand perception
By manufacturing locally vendors are able to sell Made
in Africa products and capitalize on employing local
workforce to achieve better brand perception and
corporate social responsibility.
Product customization
Through local production, vendors can focus on
producing a customized range of entry level products
(complimented by CBU imports). Entry level and basic
feature models generally make up the biggest
percentage of products in demand.
Challenges
Localization can be challenging in some regions due to
poor infrastructure, continuous power shortages,
security issues (transportation of goods), corruption and
shortage of skilled workers. The lack of local talent and
the high turnover rate make it difficult for vendors to
build local dedicated teams.
Modern channels
Certain key markets in Africa such as Algeria and Nigeria
still have relatively underdeveloped modern channels.
This poses a key challenge due to the complex network
of traditional dealers and the number of dealers needed
to find economies of scale.
Credit facilities
Poor credit and financing facilities limit the purchasing
power of both distributors and consumers.
Competition with local brands
The low income segment, which is still the largest
consumer segment in Africa, remains quite loyal to
local brands.

Summary of opportunities and challenges
The following is a summary of the identified opportunities and challenges faced by consumer electronics vendors
in expanding and growing their business through adopting a localized strategy:
The South African retail market offers great potential
and has an estimated size of approximately $68bn
(2010). However, succeeding in the market requires
insights into its dynamics as well as the ability to
overcome a number of unique barriers. At the same
time, several key trends are currently shaping the South
African retail market and increasing its complexity:
Growing retail market
Despite the current retail slowdown, South Africas
retail sales are expected to grow by 49% by 2014 due
mainly to economic growth, the emergence of a
strong middle class, decreasing unemployment and
underserviced rural areas. One of the contributors to
the retail growth will be sale of consumer electronics
(+43% estimates over 2010-2014)
Emerging middle class
South Africa is undergoing a remarkable
transformation with the expansion of the middle class;
the number of upper-income households is growing at
more than 20% annually. However there is still a large
portion of inequality among South African consumers
where 64% of the total consumption is driven by only
13% of the population.
A developed retail market dominated by local
players
South Africa has a developed retail market dominated
by domestic firms (Massmart, JD Group, Pick n Pay,
etc.). None of the major international retail chains
such as Carrefour and Tesco has yet entered the
market; however the recent entry of Wal-Mart
acquiring Massmart and the expected entry of
additional global retailers into the South African
market will reinforce the competition and reshape the
retail landscape.
The Africanization of South African retailers
Most of the leading South African retailers (GAME,
Makro, JD group etc.) are expanding rapidly into the
Sub Saharan region including into new markets such as
Angola and the Democratic Republic of Congo (refer to
diagram below)
Emerging global brands
Global companies are increasingly using South Africa,
which provides a regional strategic export and
manufacturing platform as a window into Africa.
According to the American Chamber of Commerce in
South Africa, nearly 50% of the chamber's members
are Fortune 500 companies, and over 90% operate
beyond South Africa's borders into southern Africa,
Sub-Saharan Africa and across
the continent.
Figure 5.2 below shows the Africanization of the
South African retailers, and their aggressive expansion
into Sub-Saharan Africa. For example, Pick n Pay has
recently announced its intention to increase its stake in
the Zimbabwe operation TM Supermarkets in a deal
worth about US13 million. Pick n Pay's strategy into
Africa has mainly been through partnering with local
retailers and/or through franchising. Meanwhile, Game
has undergone a fast track expansion program into
Africa over the last five years and has doubled the
number of its stores, with new outlets expected in
Angola and the Democratic Republic of Congo.
South Africa case study
Kenya
Tanzania
Nigeria
South Africa
Namibia
Zambia
Mozambique
Botzwana
N. of stores outside
South Africa
12
2
2
37
2
0
0
Figure 5.2 - The presence of South Africa retailers in Africa
Opportunities
GDP & Unemployment
The GDP per capita is expected to grow at a CAGR of
1.2% (estimates over 2010-2015); the unemployment
rate is expected to decrease at a CAGR of -6.1%
(estimates over 2010-2015) thanks partially to the long
term benefits from the World Cup.
Consumption
Household expenses are forecasted to grow at a CAGR
of 5.1% (estimates over 2010-2015) reinforced by an
expected improvement in credit facilities. Sales of
consumer electronics are expected to increase by 45%
over this period.
Using South Africa as a window into Africa
There is a high degree of overseas interest in using
South Africa as a platform for growth into Africa. A
strong contributing factor to this is the high number of
favorable trade agreements such as: SADC, AGOA,
GSPS, TDEA, SACU and IBSA covering exports into the
Sub-Saharan market.
Untapped rural areas
There are significant opportunities to open shopping
malls in rural areas and townships. The expected
extension of electrical power in townships will lead to a
rise in consumption of consumer electronics goods.
High degree of ICT maturity
South Africa has a relatively modern and developed
technology and communication sector. The penetration
rates for mobile, telephones and PCs are higher than the
MENA average.
Challenges
Transportation
Costs relating to transportation of goods are high due
to: large distances between key domestic markets and
the high degree of required security due to the risk of
road hijacking.
Regulations
Selling direct to retail requires compliance with a
number of business regulations and consumer laws, e.g.
Broad Based Black Economic Empowerment (B-BBEE),
National Industrial Participation Programme (NIPP),
Consumer Protection Act (CPA). Compliance with these
is both a difficult and costly exercise.
Labour unions
South African unions are known for their propensity to
go on strike, which can be lengthy and sometimes
violent. COSATU (Congress of South African Trade
Unions) and other local labor federations are very
powerful in the country.
Security and crime
A key conclusion in the World Economic Outlook (WEO)
competitiveness report is that crime is the most
problematic factor for doing business in SA (including
theft of goods).
Market saturation
The retail market might quickly be saturated with the
increasing number of shopping centres established in
the larger cities.
Opportunities and challenges
Some of the main opportunities and challenges of doing business in South Africa for consumer electronics vendors
are outlined below:
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