South Africa Company Investing in Eu Country
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INDEX
INTRODUCTION
THE HISTORY OF CAPE UNION MART
DETERMINANTS OF THE STRATEGY
THE PRODUCT RANGE
STRATEGIC CHOICES
THE CAPE UNION MART CONCEPT
LEGISLATIVE FRAMEWORK
RECOMMENDED STRATEGY
CONCLUSIONS
LIST OF SOURCES
INTRODUCTION
The Go2Europe Project presents a strategy for Cape Union Mart, a South African outdoor apparel and accessories company, wishing to enter European (union) markets. The company is well established in South Africa but the current position has been reached as a result of conservative growth and there has been no expansion beyond the borders of South Africa.
An environmental analysis is required at both the level of the European Union (EU) and the country specific level to understand the legislation and constraints that may exist for foreign investors. The analysis covers the guidelines provided by the EU for a South African company exporting apparel to a member country. The point of entry selected to the is France because of the levels of disposable income, the retail friendly infrastructure as well as the access to a wider cultural base than what a typical English city would offer. A successful roll out of stores in France will provide the necessary impetus for further expansion into other EU member states.
Cape Union Mart has the potential to succeed in expanding its retail operations by opening stores in Europe as well providing export opportunities for its manufacturing division that provides a large portion of the clothing and footwear sold in the stores. Under the Cotonou Agreement concluded in 2000, South Africa enjoys preferential status being part of the African, Caribbean and Pacific (ACP) countries. The agreement provided preferential trade status to former colonies in order to help grow their economies (Willks & Mwebelha, 2006).
A European expansion will prove successful for Cape Union Mart because the product range will be accepted, the store concept can be replicated, the Euro economy is a stable environment and the strategy would entail both a retail and export component.
THE HISTORY OF CAPE UNION MART
The company dates back to 1933 when the late Philip Krawitz, grandfather of the current Chief Executive, founded the business on the corner of Corporation and Mostert Street in Cape Town. Cape Union Mart originated as an Army and Navy Store and became famous for its everything from an anchor to a toothpick product range (www.capeunionmart.co.za).
Sandwiched between two of South Africas largest retailers, Woolworths and OK Bazaars, Cape Union Mart realised that it had to offer something different. Apart from an extensive range of merchandise, the store became known as “the friendly store” and focused on building unique relationships with its customers. Although found in large shopping malls over seventy years later, the challenging remains one of having to differentiate itself from large retailers. During the war years it supplied visiting troops with some of the luxuries and necessities associated with the military. Passing whaling ships and foreign fishermen were catered for with a unique array of merchandise from around the world.
In the post war years the company grew and prospered under Arthur Krawitz who took over the business from his father in the late 1940s. The company became famous for non-seasonal merchandise and specialised in selling summer clothing to people touring overseas in winter and vice versa. Cape Union Mart was the first importer of many famous products such as Levi Jeans, Hong Kong anoraks, Norwegian socks and Goretex foul weather clothing to South Africa.
In 1970 the current Chief Executive, Philip Krawitz joined the business as a third generation family member. All the stores are located in prestigious, high traffic shopping centres. The Company also acquired a well-known uniform business and successfully ventured into manufacturing. Through the manufacturing operations, it owns and controls brands such as Old Khaki and K Way, a range of apparel, shoes and luggage. The company has approached growth conservatively with a total of 49 outlets in South Africa and no stores beyond the borders of South Africa. Products are marketed at outdoor interest groups rather than a particular income group, however, these consumers just happen to be middle to upper income earners (Business Report, 2006:18) The store concept has proved very effective with a similar model being followed by a competitor, Capestorm.
DETERMINANTS OF THE STRATEGY
According to Thompson, Strickland and Gamble (2005:199) companies base expansion decisions on four major reasons, to gain access to new customers, to achieve lower costs and become more competitive, to leverage their core competencies and to spread their business risk across a wider market base. In the case of Cape Union Mart, the reasons for expansion relate to the quest for new markets, seek export opportunities to continue growing the manufacturing operations and to spread the business risk over a different currency base.
A number of countries may prove attractive within the EU and it is not the intention to present a comparative analysis but merely to present a broad strategy for entering a new market with the view to further expansion.
Financing and tax implication are key considerations, however, research indicates (Wolff, 2006) that high source country tax clearly increases the probability of firms to re-invest profits abroad and also lowers the use of debt to finance investment, while market size plays less of a role. In this regard, European markets are attractive to Cape Union Mart while options for financing the expansion would depend on both tax and interest implications within both countries.
3.1 Market attractiveness
The developed countries in Western Europe provide a suitably wealthy customer base and the geographical region provides opportunities for outdoor activities for both locals and tourists. These include skiing, hiking, cycle events such as the Tour de France and various sports activities. The chosen market in this case is France which can provide and initial starting point for future European expansion. There is a strong target market, the infrastructure