leading consumer electronics business organizations

8/12/2019 Leading Consumer Electronics Business Organizations

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Eighty five years in the Middle East

Leading Consumer Electronicsbusiness organizations

Maximizing growthopportunities in Africa


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Contents

Introduction

Economic outlook

Business environment

Best practice

Key localization strategies

South Africa case study

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5

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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 paperattempts 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 byleading consumer electronics multinationals.

In line with the globalizationparadigm, Africa has become thenew business destination for many

consumer business multinationalsover the last 10 years


5/24Maximizing Growth Opportunities in Africa | Leading Consumer Electronics Business Organizations | 5

Africa is amongst the fastestgrowing economies in the worldand an attractive destination forconsumer 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)2003200220012000

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 tothe 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


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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)200920082007

1.3

08

1.5

46

1.4

85 1

.705

1.8

51

2.0

27

2.2

18 2

.423

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 AfricanDevelopment 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 tradeagreements

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


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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 compriseof macro-economic instability,under-developed infrastructure,low administrative capacities andlack of skilled labor


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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 investorsindicated 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.

Maximizing Growth Opportunities in Africa | Leading Consumer Electronics Business Organizations | 9

Egypt

South Africa

Kenya US

Nigeria

Education

EconomicFundamentals

Entrepreneurshipand Innovation

DemocraticInstitutions

Governance

PersonalFreedom

Social Capital

HealthSafety & 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.


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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 closelyrelated 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 riseof the Afropolitans (cosmopolitanAfrican group) have significantly

changed the lifestyle and purchasingbehavior 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 expandingin 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

income21 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


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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 inabilityto 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 brandpresence/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 thestrength of a brand with the strengthof its advertising and marketingactivities

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 leadingconsumer electronics vendors in Africatoday is how to effectively cover the

diverse regions with an optimumorganization structure


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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 officesFigure 4.2

Sales Forecasts

Logistics

Pricing

Marketing

After sales services

Product planning

Responsible

Responsible

Responsible

Responsible

Both

Both

Informed

Informed

InformedResponsible

Responsible

Responsible

Morocco

Local Office

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 showthe 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


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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 obl iged 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 andoutlets are expected to loseattractiveness in face of aggressive

competition from hypermarkets



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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 canprove 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.

Establishlocal offices

DevelopShow rooms

LocalizationStrategy

Invest Heavilyin marketing

Build up of Strong local

partnerships

Setup local

assembly plantsEngage 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 usinga direct approach for distribution toend-users, particularly to the modern

channels, corporations and governmententities

Maximizing Growth Opportunities in Africa | Leading Consumer Electronics Business Organizations | 17


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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 initiativesand 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 limitthe purchasing power of bothdistributors and consumers



Opportunities

Cost and time to market

Local production reduces logistics costs and associatedcustom duties and allows the vendors to realize faster

delivery times and faster reactions to changes in

consumer demand 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:


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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 expansioninto 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 outsideSouth Africa

12

2

2

37

2

0

0

Source:Deloitte research and analysis

Figure 5.2 - The presence of South Africa retailers in Africa


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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 offavorable 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 TradeUnions) 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:



Firas Eid

Partner | Consulting

Tel: +971 (4) 369 8999

[email protected]

Parham Gohari

Senior Manager | Strategy

Consulting

Tel: +971 (4) 369 8999

[email protected]

Andreas Frandevi

Manager | Strategy

Consulting

Tel: +971 (2) 676 0025

[email protected]

Virginie Clemancon

Manager | Strategy

Consulting

Tel: +971 (4) 369 8999

[email protected]

Noura M. Al Hashimi

Strategy Consulting

Tel: +961 (1) 366 844

[email protected]

Faris W. Khatib

Strategy Consulting

Tel: +971 (0) 4 369 8999

[email protected]

Strategy consulting and consumerbusiness contacts

Deloitte can support your organization to understand and anticipate changing consumer needs, respond rapidly with

relevant products and solutions, and explore emerging opportunities. The following includes a list of our customized

offerings:

Corporate and competitive strategy Customer and market strategy

Growth strategy and M&A

Market entry strategy services

Supply chain and channel management

Product development and pricing strategy

Commercial due diligence services

Country risk assessment

Balanced scorecard

Strategy implementation support


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About Deloitte:

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited byguarantee, and its network of member firms, each of which is a legally separate and independent entity.Please see www.deloitte.com/about for a detailed description of the legal structure ofDeloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and f inancial advisory services to public and private clientsspanning multiple industries. With a globally connected network of member firms in more than 140countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeedwherever they operate. Deloitte's approximately 170,000 professionals are committed to becoming thestandard of excellence.

Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value tomarkets and clients, commitment to each other, and strength from cultural diversity. They enjoy anenvironment of continuous learning, challenging experiences, and enriching career opportunities.Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, andmaking a positive impact in their communities.

About Deloitte & Touche (M.E.):

Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the firstArab professional services firm established in the Middle East region with uninterrupted presence for over85 years. Deloitte & Touche (M.E.) is among the regions leading professional services firms, providingaudit, tax, consulting, and f inancial advisory services through 26 offices in 15 countries with over 2,400

partners, directors and staff.Deloitte & Touche (M.E.) is a 2009 Hewitt Best Employer in the Middle East and was recognized as the2010 Best Consulting Firm of the Year in the First Complinet GCC Compliance Awards. Deloitte is a Tier 1advisor in the GCC region (International Tax Review World Tax 2010 Rankings).

leading consumer electronics business organizations

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