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The Context and Institutional Environment of Africa

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Strategic management is necessary to plan appropriately and ensure thatorganisations outperform their rivals. With regards to the externalenvironment relating to Africa, we will explore the roles of the African Union(AU) and the Southern African Development Community (SADC) inpromoting the well-being, attitude and competitiveness of African countriesin the global economy University of South Africa (2018:73). This may includeidentifying strategic opportunities for business in Africa and exploringstrategic options available to organisations intent on doing business inAfrica. In this essay, we will analyse the external environment relating to Africa thatwill form a frame of reference for doing business in Africa. We will alsodiscuss possible threats that Spur Corporation may face as well as thepossible actions that can be implemented to prevent them.

The context and institutional environment of africa

With regards to continental and regional levels, African nations havedeveloped strategies and cooperated under the support of the AU. As aresult, each individual country will have different strategies that will affecttheir industries and business organisations. A key goal of the AU has beenidentified as wealth creation, Venter et al (2014).

The external environment in context

The key strategic issues that Africa faces, as identified by University of SouthAfrica (2018:73-74), are briefly discussed below:

  • The lack of infrastructure: Inadequate infrastructure in African countriesis a large concern for investors and businesses. Poor infrastructure -unwilling governments that are incapable of maintaining or improvingexisting infrastructure, and governments unable to provide newinfrastructure – are major obstacles between investment and business inAfrica. Particularly the economic activity and business of a country. Thelack of infrastructure consistently transforms into inadequate supplychains which negatively affect the sourcing of strategic raw materials forproduction as well as the distribution of much-needed products tomarkets, especially those in rural areas.
  • Political instability: Political instability typically results from uncertain andunpredictable government actions, which may include social andeconomic disruption or even armed conflict. Another factor isnationalisation of industries or expropriation of property and assets ofbusiness organisations. All of these factors present uncertainty and riskto investors and businesses.
  • High levels of poverty: In most African countries and in many otherdeveloping countries, a large proportion of the population lives on lessthan two US dollars a day. Recessions are also occurring more often,causing various international currencies to become destabilized.
  • Corruption: Corruption can have a disastrous effect on business andsociety. Various international indices such as TransparencyInternational’s Corruption Perception Index, show that 90% of thecountries in Africa, on average, scored 33% instead of the pass mark of50% University of South Africa (2018:74).
  • An inefficient public sector: The disappointing economic growth of theAfrican economy in recent years can be largely attributed to an inefficientpublic sector. The purpose of the public sector is to improve the generalwelfare of society by delivering public goods and services to individuals,and to private and other public sector organisations, playing a criticalrole in both the country and the global economy.
  • Lack of key skills: Countries in Africa have generally been characterisedby a lack of key business and especially managerial skills, and an ampleand often over-supply of a semi-skilled and unskilled workforce. Insection 5. 5. 4 below, ‘‘Investing in Africa’’, these and other businesschallenges are discussed in more detail. Read section 5. 5. 4 before youdo the following activity.

Threats to Spur Corporation within this environment

The lack of infrastructure: Though the effect of load-shedding hasdecreased, South Africa is facing an increasingly severe water crisis. Water is a necessary resource in daily life, and is fundamental to theoperations of a restaurant. Ingredients are perishable and need to bewashed and preserved, and equipment needs to be sanitized thoroughlybefore use. Cities such as Cape Town that are based predominantlywithin the tourist industry will be especially affected. Outlets such asJohn Dory’s will require more water than most in order to preserve theseafood that forms a basis of their menu.

  • Political instability: The South African political system affects the entireSouth African Food and Beverages Industry and determines the contextwithin which businesses operate. Changes in policy can have majoreffects, especially if Spur Corporation wishes to branch outinternationally, Spur Corporation Integrated Report (2018). Obligationsunder international treaties will have to be met, such as compliance withtrade rules.
  • High levels of poverty: Due to pressure from Trade Unions and largemanufacturing companies, the South African Government are constantlytrying to stabilize the South African Rand. A weaker South African Randand especially an unstable Rand means that South Africans has to paypremium prices for basic living expenses therefore contradictory to thepopular belief that a weaker Rand is beneficial for South Africa. Restaurants under Spur Corporation are highly dependent ondisposable income of the South African consumers, which will beaffected by the fluctuating rand. They will also have to compete withinternational new entries to the South African market which may havethe benefit of stronger currency backings.
  • An inefficient public sector: A common threat to any restaurantenterprise is hygiene, slow response time, and standardising. Regardinghygiene, some outlets serve food that is prepared by workers withoutgloves or by people who operate tills and handle bank notes at the sametime. It is common for consumers to have to wait for periods of timebefore being seated at popular restaurants, and then only being servedtheir food after prolonged waiting period due to restaurants serving“over-capacity”.
  • Lack of key skills: Restaurants in South Africa are one of the largestemployment industries today and growing pressure is being placed onrestaurants to provide better work conditions, salaries and opportunitiesfor previously disadvantaged. A complaint that is predominant is the lackof education and how the education system has failed the youth of today. This has a detrimental impact on the availability of qualified and trainablestaff, which in turn will result in an unsuccessful industry.

Actions to combat threats to Spur Corporation

  • The lack of infrastructure: The problems of electricity and water, bothkey inputs in the restaurant industry supply chain are a cause forconcern and require long term solution from policy makers. It is difficultto create solutions for multiple regions that differ in the availability ofresources, and thus a policy for water conservation should beinvestigated and drawn up in conjunction with the Water and ElectricityCouncil of each province.
  • Political instability: Since Spur Corporation wishes to branch outinternationally Spur Corporation Integrated Report (2018), the SouthAfrican political environment must be seen more and more as part of awider international context. It will be important to negotiate tradeagreements within other countries following the proper channels toensure continued success.
  • High levels of poverty: Branching out into other countries will allow aninflux of foreign currency that can help strengthen the rand – especiallyif foreigners that visit South Africa can identify familiar brands. This canalso lead to South African employees migrating to other countries tocontinue business operations overseas since they are familiar with the.
  • An inefficient public sector: Providing workers with gloves and hairnets,or uniforms that prevent exposure would be an effective way to limithygiene infractions. Frequent health inspections may also help create a“hygiene-oriented” mindset. Another solution would be to pre-preparefood in advance to cut down order processing time, but this may comewith the side effect of compromising product freshness.
  • Lack of key skills: Learnership programs can be created to help providework experience to potential business managers. Training courses andworkshops for individuals seeking employment can also be used toprovide necessary skills in the restaurant industry, whilst also promotingthe company image in the public.

Conclusion

This essay analyzed the external environment relating to Africa as a frameof reference for doing business in Africa. The context of the externalenvironment was used to identify threats to Spur Corporation and possibleactions to combat these threats were suggested.

  • Some associated cost drivers that need to be managed:o economies of scale arise whenever activities can be performed morecheaply at larger volumes than smaller volumes and from the abilityto spread out certain fixed costs over a greater sales volumeo Experience and learning-curve effects costs of organisations candecrease as employee experience increases. This leads to higherproductivity, better application of technology etc.
  • Technological advances investment in cost-saving technologies canenable organisations to reduce the unit cost of their products orservice significantlyo Improved efficiencies and effectiveness through supply chainmanagement an organisations value chain is directly linked to thevalue chain of its suppliers and customers

Differentiation

  • Consists of creating differences in the organisations product or serviceoffering by creating something that is perceived as unique and valuedby customers.
  • Prestige or brand image, technology, innovation, features, customerservice, product reliability, a unique taste, speed and rapid responsethrough activities such as prompt response to customer complaints
  • Sustainable differentiations is usually linked to core competencies,unique competitive capabilities and superior management of the valuechain activities that competitors cannot readily match

Best-cost Provider strategy

  • An integrated strategy enables an organisation to provide value in termsof differentiated attributes as well as lower prices
  • The objective becomes to provide unique products and services moreefficiently than competitors do
  • Although immediately differentiation increase unit costs, the costs wilddecrease as volume increases

Strategy Spur Corporation Pursues

Differentiation: Spur Corporation has a number of restaurant chains thatoffer specific types of food – John Dory’s (seafood), RocoMamas(burgers),Panarottis(pizza and pasta). The variety of products offered cater to uniquetastes and palate and exclusive sauces and flavors prevent competitorsfrom replicating the products elsewhere. There are also monthly and weeklypromotions and specials that promote brand loyalty. This has succeeded increating demand for products, which gives the company power over pricesthrough product differentiation, exclusivity, brand loyalty and hype aroundpromotions. According to University of South Africa (2018:23) SpurCorporation, Famous Brands, and Taste Holdings are the three majorplayers in the South African restaurant market. However, the majority ofrestaurants under Spur Corporation are sit-down as opposed to the othertwo players which consist mainly of take-away outlets. Sit-down restaurantshave the advantage of providing a unique atmosphere, whilst take-awaysprovide a faster service. Spur Corp. has succeeded in creating demand forall its outlets products, giving the company power over prices throughproduct variety, ensured brand loyalty, and unique customer service.

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The Context and Institutional Environment of Africa. (2019, November 26). GradesFixer. Retrieved May 22, 2022, from https://gradesfixer.com/free-essay-examples/the-context-and-institutional-environment-of-africa/
“The Context and Institutional Environment of Africa.” GradesFixer, 26 Nov. 2019, gradesfixer.com/free-essay-examples/the-context-and-institutional-environment-of-africa/
The Context and Institutional Environment of Africa. [online]. Available at: <https://gradesfixer.com/free-essay-examples/the-context-and-institutional-environment-of-africa/> [Accessed 22 May 2022].
The Context and Institutional Environment of Africa [Internet]. GradesFixer. 2019 Nov 26 [cited 2022 May 22]. Available from: https://gradesfixer.com/free-essay-examples/the-context-and-institutional-environment-of-africa/
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