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1.With reference to a South African company of your own choice, discuss the advantages and disadvantages of local and international to a company’s operation and growth prospects
For the purpose of this research I have selected Nando’s as company to focus on because it is well established here in South Africa and abroad. It emerged in Rositteville, Johannesburg in 1987 and later expanded to the international market. Nando’s is a food services industry (mainly focus is on restaurants/eatery) which is popular for its sizzling Peri-Peri Portuguese chicken.
Enhanced customer awareness and loyalty
Unlike when McDonald’s failed when they tried to introduce their popular clown in China. The face colour of the clown was white which represented death in Chinese culture Nelson(1999:80). Nando’s does a thoroughly research about their host (targeted market) through proper market research to understand the diversified cultures, in order to know how much impact could be made when marketing the product across borders.
Expanded market opportunities
When a company expands to the global market it will be able to broaden the customer base. In the case of Nando’s, it has grown to more than 1400 restaurants in 22 countries but only exists in 5 continents. These statistics proves that they have more or greater potential international than focussing at South Africa alone. According to Hasenfuss(2017) After it has left the Johannesburg Security Exchange in the secondary listing it worth R140 million Nando’s has grown into a global niche eatery brand, with a revenue of £809 million (approximately R1.35 billion) from 946 stores as at the end of February 2016. The is mulling rumour that it will be listed in one London Stock Exchange which is one of the largest stock and top three in the world.
A franchise is an inexpensive way of becoming an insider in the another country. A franchise produces new business opportunities, jobs and allows people with small capital but equipped with knowledge/experience in operating their own enterprise. Franchise is regarded as the best expansion method and will create broader income streams, e.g. the payment of royalties for the franchise to the franchisor, and avoidance of tariff and non-tariff barriers.
Well according to the ITRSA (2018), by spreading sales over number of different countries, a producer might be able to minimise the effects of fluctuating demand which is a regular feature of most markets. Factors like strikes of by employees within the industry, recession will may have excessive impact in one country but not the whole world. In that case Nando’s have greater chance of survival because of their risk and returns strategies, and marketing/growth strategies.
Ability to provide persistent improved quality (monitoring)
When engaging to international trade businessmen are exposed to greater competition. Nando’s at the global concentration of production allows investment in better facilities and equipment in order to offer better service than its competitors, yet remain profitable, competitive and be uphold international standards as it the second best chicken franchise around the world. The franchise success of Nando’s is derived from these three principles staying connected and always be training.
Belief that people should are important and should empowered
Marquardt (1999) states that “to respond to respond to the challenges of the global marketplace, companies need to respect and empower their people” ,in relation Nando’s had the major initiative #EveryoneIsWelcome, which involves it involved plastering all six Washington DC outlets with posters stating that the fast food outlet is “an immigrant employing‚ gay loving‚ Muslim respecting‚ racism opposing‚ equal paying‚ multicultural restaurant” which is against the divisive announcements by the elected President Donald Trump(Sied,2017).
Nando’s Business Development Director Trudi van Niekerk states that “The biggest daily challenge is that we are people-reliant, so we are driven to make the guest experience a good one,” says Nedbank franchise (2017). With political uncertainty in South Africa any strike (with a support of unions) or political stunts within the country’s higher structures, it is will affect different industry, e.g. demand for higher wages costs will heavily impact profits.
Tensions of culture
Marquardt (1999:40) culture consciously and subconsciously shapes groups and each member’s values, assumptions, perceptions and behaviour. Everyone belongs to different countries/cast and they do not know how to communicate with each other and how to respect each other. After a research was done by…… So there is no good work ethics…… needs some spicy
The determinants of suppliers
Botha & Musengi (2012:58) mentioned that the relationship with supplier must be of great care as this maybe threatening to the existence of the entity imagine the effect when stock is not deliver on time or poor quality. As we seeing the chicken poultry industry at risk in South Africa, Rainbow chicken is one of the largest suppliers for Nando’s since it is known for buying locally. With regards to Rainbow chicken being compromised with the listerosis virus will hamper the supply of chicken, which will place an extra cost since now chicken will have to exported. A higher cost to for purchases obviously means higher price for our product which discourage certain portion of customers
Threats from close substitutes
As there are other giants’ fast food chains like KFC, chicken lichen, Steers or Spurs there is a threat of substitute products offered by these chains and local food shops, restaurants and take away. These products are offered in a wide range at competitive prices. For example, during promotion time consumer will go for those special as they are made to appear cheaper take for instead the spurs R50 special it promoted.
The economic factors
These factors affect health and vitality of the economic system in which the organisation operates. The important economic issues include foreign exchanges, minimum wages, inflation and taxes Botha & Musengi (2012:60). I aforementioned that every industry no matter how small or big is affected by this factors so is Nando’s. The great example is the financial meltdown/crisis were no one has any control.
2. The reasons why unrestricted trade isn’t possible in this modern times
This is the main issue above all, this developed when the countries realised that the greater difference in the ratio between import and export. Above and beyond the country has to have comparative advantage to trade worldwide and to remain competitive globally. Laissez-faire is impossible in this case thus government provide subsidies to its domestic industries’ to ensure that they are competitive. Arguments for protectionism turn to be against free trade
Free trade it’s when a country opens doors or remove barriers for import to enter freely. Some countries that specialise will provide goods at a lesser price than normal(Fair) which will lead to greater demand for imported goods, which sooner or later will lead to lesser demand for locally produced goods, closure of local business also results to a deficit to the current account and higher unemployment.
Protecting local/infant industries
With excessive imports of goods and services will definitely cause locally industries to shutdown which will lead to massive unemployment. In the long-run this will to local market being dominated by foreign businesses (goods and services) and with the reduced competition they will charge higher prices.
Stabilising the Balance of Payment(BOP)
In stabilising the balance of payment, we will specifically focus only when the balance of payment is running on a deficit. Usually when the large and persistent deficits in in the BOP, it will mainly be caused by the need to finance imports. By stabilising BOP we basically saying transferring the deficit into a surplus through the following mechanisms:
According to M, Burger., J.Bantjies.,M. Engelbrencht.,&D. Ross(2013;84) promotion of export can be through higher productivity, increased production volumes, government subsidies and tax benefits(exemption) to exporters so that they become more competitive. For example, South African government has been subsidising the textile industry to encourage export but even though it has not been that successful.
According to M, Burger., J.Bantjies.,M. Engelbrencht.,&D. Ross(2013;84) this is applicable through the applications of trade restrictions such as import tariffs, duties and quotas which will make imports more expensive or support/promoting locally produced goods. Government can use the forms of import substitution restriction methods and each has its own significance impact. For example, an import quota, American tobacco is limited to a certain number, it will create higher demand as such prices will go up, as such demand will decrease.
Exchange rate control
The Reserve/Federal bank can weaken the currency to discourage the import of goods and services. In this sense it will be expensive for local people to purchase external (imported) goods. For example, in China as the largest supplier of steel can weaken it currency mainly because it wants to promote exports, i.e. If Chinese currency is weak it will be cheaper for other country to purchase steel from china.
This applies when a country sells military weapon to another country without any restriction to sale with a profit motive, they may be promoting wars were thousands of life may be loss. For example, in 2016 South Africa made R2.7 billion from exports of firearms which was sold to Nigeria, Azerbaijan, Burundi and Kenya were Burundi, where President Pierre Nkurunziza recently extended his term by another five years and where civil war is raging, bought armoured combat vehicles valued at R44 million from South African suppliers this was according to the Defence web (2016).
Trading blocs and agreements(protocol)
We are practically looking at the rules and regulations that binds/governs countries or regions pertaining international trade relations Ross, D., Bantjes, J., Engelbrecht, M. & Burger, M (2013:88). This will ensure that partners are chosen are willing to trade under trade under conditions set. Examples of economic integration includes free trade area, customs unions, common markets and economic union by having the aforementioned example persuade a significant bias in sales of a product for the businesses one country(member) over the others(non-member).
3. In reference to question 2 above, highlight categories of trade restrictions which you believe are justifiable.
Tariff and non-tariff barriers
When some country implement trade barriers because it is of paramount to them protect and promote local/nationally produced goods.
The definition according to (SARS:2017) Ad valorem Excise duty is a fiscal measure imposed on certain locally manufactured goods and a corresponding Ad valorem Excise duty (at the same rate) is imposed on imported goods of the same class or kind. I believe that this kind of rate it was implemented to increase competition (while having an equivalent advantage) on industries within multilateral/multiregional/bilateral trade. SARS also state that Ad Valorem Products includes: Motor Vehicles, Electronic Equipment, Cosmetics, Perfumeries, air condition, cellphones generally regarded as “luxury items” and are subjected to the payment of Ad Valorem Excise Duty if used within the Southern African Customs Union (SACU). The ad valorem excise duty was increased to 9% on the 2018 budget speech.
It is defined as “specific rate of duty is a fixed monetary amount per unit of the traded item” (ITRISA, 2018:69). Government applies this kind of a tariff on products which are heavily imported, with aim to benefit from the effect (BOP Deficit) it’s has on the economy. Looking at the budget of speech 2018 one of the proposal was that they increase by 52 cents per litre in levies on fuel, made up of a 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy, on can tell that even though fuels are highly imported the country will benefit should a road accident happen.
Compound rate of duty
The compound rate of duty involves both ad valorem and a specific rate of duty being applied to the same products (ITRISA, 2018:70). This mixed or combination of tariffs is the way for the government to maximise the protection. Assuming that Bill Gates wants to buy an estate worth more than R30 million in South Africa he will liable to a 25% estate duty this is according to Budget speech (2018).
Occurs when one country produces a large number of products at lower production by means of cheap labour, subsidies by the government or incentives to have a competitive advantage foreign market. The trade War between China and USA started when USA announced increase in import tariffs on steel and aluminium China, which was with an aim to protect industries in the USA through by charging tariffs in a manner that it will be fair competitive (prices) for both economies.
Exchange rate control
As mention above that these are measures taken by the Reserve bank to influence or restrict the number/value of transactions pertaining the purchase of foreign goods. The tool that the Reserve Bank use is the money supply, surely if it increases money supply it encourage more purchases and if it decreases eventually the demand for imported goods will decrease. This mechanism is vital since it control quantity and price of goods coming into the country this is another means to discourage dumping.
It is the payment (incentive) by government to domestic producers which allows them to sell their goods cheaply while making profit abroad, is usually done to promote export. It is reasonable for the state to assist local industry to ensure their survival, take for instance the South African textile industry has been completely demolished because south African government failed to protect such industry, according to Cape talk 702(2017) the impact of cheap imports on the local clothing industry has created a significant decline in the number of people being employed, about 15 years ago we had approximately 200 000 people in the clothing textile industry and we’re down to about 19 000 now.
To understand the purpose of quotas you understand the concept of “too much of everything is bad”
Import quota shouldn’t be mainly about protecting industries but also citizens. If government can also highly consider the human factor, eventually it will make greater decisions on quantity to import. USA is the leading importer of guns without quota as a result in 2016, there were more than 38,000 gun-related deaths in the U.S according to Time (2017). If it could restrict guns in circulation and availability this will reduce the death incidents.
According to export quotas is implement to prevent the depletion of natural resources or raise an export price by restricting the supply in the foreign market (ITRISA, 2018:73). The Department of Environmental Affairs (DEA) officially announce a government-approved annual export quota of 800 lion bone skeletons, despite worldwide revulsion and opposition to South Africa’s captive lion breeding and canned hunting industries(Bloch,2017).
Embargoes and Sanctions
An embargo is a higher degree of a quota that prevent any trade to a certain country. While the sanctions are when a group countries coming together to target a country’s policies, through the restriction of all trade against that country. The most current sanctions were proposed by the US to the UN against the North Korea to restrict oil to be exported into the country with to deal with the dictatorship.
Buy local legislation
This method is used by government to substitute imports, by doing so the government is promoting local product as one can say “local is lekker”. Government may offer incentives or brand promotion, or can be promoting its key income departments. For example, the “short left” idea was to promote the South African tourism and the “Proudly South African”, it promoted locally produced goods.
It is emphasised by the ISO (ITRISA, 2018:80) that all countries in the world prescribe that goods traded meet certain standards in order to ensure that the rights, health and wellbeing of citizens are protected since some are required by law and others are voluntary. This is necessary since it would benefit the country not to lose money, looking at the Ford krugas saga were ford ended up having to recall all Ford krugas produced between from December 2012 to February 2014 due most of their cars were catching fire(damaged) during the 100 000KM warranty.
4.1Multiliteral trade approach to international trade (as advocated WTO)
Advantages to international trade
Every member has to comply with the principle of trade without any restriction, meaning if one member of the WTO offers/grants trade benefits to one member it must offer the same benefit to all its other members. Benefits are the same for both developing and developed countries, African or European, lower or higher income country.
Administering of global trade rules and regulation
As Marcus Cicero once said “the safety of the people should be in the highest law”, the WTO is to promote the use agreed multilateral of trade rules and disciplines and limits the resort to unilateral measures for resolution of trade conflicts.
With a higher changes and frequently in international trade the Ministerial conference meet at least every two years to negotiate against any trade-related concerns and grievances. Even though there has been dissatisfaction in countries before they are always addressed during the conferential meetings and the success it had on the previous agreements. Implementing and administering the (1994) GATT, GATS and TRIPS separate any issues/disputes members have for instance the agreements strictly focus on type trade the members are having problem in.
Opens doors to the international and new broader market
For developing countries have to take advantage of market openings, it requires the capacities to trade through in of financial resources for trade adjustment and integration, which we will not reap the benefits provided by the new trade opportunities for development and poverty reduction. Zimbabwean new government will have forced to make right decisions of protecting citizens and enforced regulation and laws which will work in favour of its people, Zimbabwe recorded before the step down of President Robert Mugabe had the 85% unemployment rate according to News24(2018) because of sanctions posed by the US and EU.
The Multilateral Trading System does not and cannot stand alone. It is part of a broader agenda. That broader agenda is growth, increase in welfare, poverty reduction and sustainable development. To ensure fair trade for all, the World Trade Organisation will have to make every effort to marshal international political goodwill necessary to make compromises critical in any negotiation (President Kamana:2005).
Disadvantages to international trade
Some members won’t offer much benefits to trade while expecting to benefit from others, in short, they will be free riders to trade. Second the issue of most favoured nations (treatment) shouldn’t exist yet we still see those treatments still existing. The reason we still have bilateral/regional trade agreements is mainly because they want to exclude free riders. For example USA has a very strong protectionist policy, while when they export their goods are charge lower export tariffs and duties.
Escalating trade disputes
Trade dispute (conflict) between countries may occur anytime, take for instance the trade war between China and USA. If the Ministerial conference meets every two years, by then the damage would be injured both economies. To see the detrimental effect of the trade war we can look at them in a form of consumers, producers and government:
Consumers- the economic shock of increase in tariffs in both economies will hamper on households as the due to an increase in prices without any increase in income, will decrease purchasing power of consumers as such poverty will start to escalate for low income household.
Producers-local producer will benefit due to prices being back to normal (fair price) and they will be able to complete, external producers will be discouraged will make their products more expensive but have to sell lesser quantity because of higher prices.
Economy as a whole- steel is used in buildings, infrastructure, tools, ships, automobiles, machines, appliances, and weapons. With higher cost of factor input will to higher production cost as this will increase inflation rate.
Penalty for not complying
Sanctions are posed to countries that are to countries who do behave according to norms (law and regulation) of the WTO, it may at some point reach the point where members boycott against that a certain member for not complying. Zimbabwe was sanctioned for approximately two decades which led to a harmful impact of having 85% unemployment rate.
Stronger foreign competition
If “someone can do your job much faster and much cheaper” then you have to realise your competition. In terms of trade, lower cost on foreign goods due to lower factor input cost (cheap labour or higher technological advancement) and free trade (lower barriers) will severely affect local industry even the local jobs. Cheaper foreign goods will eliminate local industries as can wipe out the whole industry if government doesn’t put measure to of protectionism. South African textile industry offered more than 200 000 jobs after its democracy but the government open doors for international businesses, as a result stronger foreign competition dominated local market now the textile offers less than 19 000 jobs.
Transparent yet unfair trade policies
They include unfavourable trade conditions, unfair trade rules, barriers to market access, including tariff peaks and tariff escalation on our exports, and distortions to agricultural trade caused by subsidies in developed countries. These distortions, whatever form they take, increase poverty levels. We have to bear in mind that trade has a human face, and the face of trade barriers and trade distortions is poverty that we witness in developing countries (Kamane H.E. P, 2005).
4.2Bilateral and regional trade to international trade
Advantages bilateral/regional trade
There is no free rider to trade, for example when looking at NAFTA they have agreed to reduce or remove the import duties and other restrictions. Only members which Canada, Mexico, United States of America can enjoy the benefits plus the agreements allows them to charge their own tariffs on any trade outside the Free Trade Agreement (FTA).
Economic Partnership Agreements
Partnership arrangement benefit all parties equally in the long run. By eliminating barriers to trade and movement of people, each economy in the agreement can take advantage of market opportunities in the others. Economic partnerships can strengthen political ties in addition to economic connections, providing solid allies in times of political upheaval or military action. For some countries like Japan it is crucial for them to have such partners in trade, since they are inadequate in natural resources as they are reliant in the imports to boost their economy as they are well known as industrialised economy in the world.
The Rwandans former President Paul Kamane disclosed that “many countries in Africa have faced this situation, which explains why over the past 20 years, even as Africa has liberalized, its share of global trade has shrunk from 6% to under 2%”. Therefore, Bilateral/regional approach is aim at to promote minimum restriction towards it’s their members in to expand the markets and reduce costs through economies of scale.
When a trading bloc is formulated usually trade creation happens so suppliers within the bloc offers product at lower cost than local supplier (ITRISA, 2018:172). South African bilateral trade agreement with China allows South Africa to purchase goods at a lower cost, products such as clothes, electrical appliances, toys etc. previously it might have purchased these goods at higher at Europeans nations at higher price.
Globalisation and its disruptive effects are the root of multilateral problems this effects include job security, increasing inequality among nations and inside them, the pervasive that people are losing control over their own lives. As such globalisation must not be seen as the negative effect to the economy because it presents opportunities for local and foreign firm they can use business to attract investments since they will be producing goods at a lower cost due to cheaper production (due to cheaper labour or technological advancements) plus the removal of barriers.
Member can extent their market/production to foreign member depending on the agreement. Individual citizens and entrepreneurs can move to other member’s state for employment opportunities or business ventures because the agreements may allow that. In contrast South African biggest food retailer Shoprite has established more than 163 stores in 15 countries outside South Africa which are in the SACU and SADC countries according to Magwaza(2014).
Disadvantages of bilateral/international trade
Trade diversion occurs when tariff agreements (trading blocs) cause imports to shift from low-cost countries to higher cost countries, for instance South Africa being a member of the SACU previously bought clothes cheaper from China but now because of its presence in the SACU Will have to purchase clothes at a higher price.
Improper fraction of benefits
Rwanda President H.E. Paul Kagame stated that “despite this increase in global trade and wealth, many member countries of the World Trade Organisation are not benefiting from the global trading system”. I further support that when two countries engage in a bilateral agreement it is a proven fact that those countries wont earn the same benefits especially when measured in monetary terms (one must have trade surplus and the other will have deficit) as a result these end up having trade conflict. For example, USA President Donald Trump as imposed imports tariffs at 45% on China’s steel with the aim to local industries but such high tariff affect china’s income as china retaliated with imposing tariff on 15% tariffs on more than 100 items American products, which caused conflict (trade war) between the two.
Withdrawal from bilateral trade
As much as it easy to engage in the bilateral trade the exiting much easier, as we know that to be in this agreement both countries must have leverage over the other. Take for instance if Lesotho may stop providing water to South Africa or South Africa cut ties with providing electricity(Eskom) Mozambique this will lead to one country heavily affected. For example, in South Africa GDP revenue is largely derived from exporting agricultural product so this will both local and international supply of agricultural products and with the case of Mozambique will face a strong lose in term of trade since in the modern days’ production relies on electricity.
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30 November 1999
Seattle, 30 November – 3 December 1999
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
Statement by Mr. Rubens Ricupero
(Speaking as an Observer)