International Business - Term Paper Example

? International Business Introduction Toy industry is one of the growing industries of the world. It encompasses both electronic and non electronic toys and games. The global toy industry is not just associated with games and fun, rather it is dubbed as one of the hypercompetitive industries. The sector is characterized by secret product development practices and occasional indictment of corporate surveillance. Some of the major players in this industry are Hasbro, MGA Entertainment, Matteland, LEGO, Namco Bandai, Sanrio, Barbie and Steiff among others. In addition, the gaming hardware division sometime also comes under the toy industry. In this segment, Nintendo, Sony and Microsoft are the major players (Barney, 1991). The industry is driven by product innovation and strategic licensing. The reason behind strategic licensing acting as one of the key drivers of the industry is because most of the revenue of the toy industry generates from exporting or overseas marketing activities. On the other hand, product innovation is the only tool through which thousands of toy manufacturing companies differentiates themselves from the others. The surge in the population of children of below 12 years of age is playing a decisive role in increasing the demand for toys across the globe. As a result of that, the industry is growing at a steady pace. According to reports, in the year 2012 the toy industry was estimated to be at a value of 84 billion U.S. dollars. Out of the total industry value, around 20 billion is attributed to the US market only. Hence, it is obvious that in terms of total turnover USA is the leader of global toy industry. However, majority of the toys being used in the country is imported. Apart from the US, another major player in the toy industry is China. Some of the cheaper plastic toys that are found in stores, restaurants, daycares centers, fairs, homes and cereal boxes that are found across the globe are mostly manufactured in China. In terms of production, the Chinese toy industry is the largest in the world. The industry generates billions of dollars and also employs millions of people across the globe. Hence, from the points made above it is believed that the scenario of the global toy industry is clear to the reader. (Source: Pierstransportation, 2012) In this report, a comparison of the South African toy industry and Seychelles toy industry will be carried out and do to the same, the study will make use of the different strategies and frameworks proposed by Michael E. Porter. Once a comparison between the two countries is drawn, the report seeks to provide a summative conclusion and recommendations pertaining to the caveats of investment and the business activity required to operate efficiently in that market place. South African Toy Industry Overview The overall scenario of the toy industry in South Africa is pleasant for the business owners as well as the government. The high turnover of the industry is playing effective roles in strengthening the national economy of South Africa. The toys and games section witnessed a strong growth in terms of the value achieved. However, during the year 2009 when the country suffered a major economic downturn, the toy industry was negatively impacted. As per reports, the sales of traditional toys reached US$72.4 in the year 2009, thereby reflecting a decline of 3% from the previous year. One of the reasons for this is the shifting trends of consumers. The construction toys and activity toys accounted for the largest share of 18.5%. On the other hand, the sales figure of dolls and figure toys declined by 5%. In the similar way, the sale of indoor games also declined by 3% (Euromonitor, 2009). Furthermore, the recovery rate was also extremely slow due low spending of consumers in such products. As a result of that the industry is still in the process of recovery. The secondary research about the South African toy industry has shown that the country has been a major toy exporter (Hill and Jones, 2012). Furthermore, reports have also suggested that the domestic toy market of South Africa is expected to experience a booming phase within the next few years. Seychelles Toy Industry Overview Seychelles is considered as one of the fastest developing countries of Africa. However, the population of the country is estimated at 90,846 only and is the smallest country of the African state in terms of population. Agriculture and tourism are the two main drivers of the economy. Like any other country, toy market of Seychelles is attractive for the business houses. The culture of playing toys is predominant in the country and for this reason the country organizes toy fair every year during the beginning of the New Year. In this fair, established players from different parts of the world as well as local players participate to showcase their offerings (Toyfair, 2013). Likewise other industries, toy industry of Seychelles were also negatively impacted, but the industry has been able to recover itself within a short span of time. (Source: Euromonitor, 2009) Industry Analysis In this section of the study an in-depth analysis of the toy industry of South Africa and Seychelles will be carried out. The aim is to compare the situation of the industry of both the countries. For doing this, different frameworks and theories of Porter’s industry analysis framework will be used. Porter 2008: - The Five Competitive Forces that Shape Strategy Bargaining Power of Buyer: - The bargaining power of a buyer refers to the ability of consumers to bargain down the price of the products (Porter, 1979). Bargaining Power of Seller: - The bargaining power of suppliers refers to the ability of suppliers to increase the price of raw materials thereby increasing the overall cost of the product (Porter, 1985). Intensity of Rivalry within the Industry: - The intensity of rivalry refers to the overall competition level of rivalry within the industry. Threat of a new entrant: - The threat of new entrant is about the possibility of a new entrant entering the industry and increasing the level of competition. Threat of Substitute: - Substitutes are not the direct competitors of a product but often serves the function of the core product. For example, water can be treated as a substitute of soap as water serves the purpose of washing. The substitute of a toy comes in number of forms. The core purpose of a toy is to provide enjoyment to the children below 12 years of age. Hence, digital games can serve as its substitute. In addition, traditional indoor games can also act as a substitute. Forces South Africa Seychelles Bargaining Power of Buyer The bargaining power of buyers in South Africa is estimated at high. This is because is South Africa the number of toy sellers are large in numbers. The bargaining power of buyer in this country is moderate as the number of providers is limited. However, during fairs the bargaining power increases due to availability of various choices and low switching cost (Toyfair, 2013). Bargaining Power of Suppliers The supplier of raw materials of toys is large in numbers. The raw materials required in general are plastic or any other required materials. The suppliers of these materials are large in numbers and hence the bargaining power is low. The bargaining power of the suppliers of raw materials is moderate in Seychelles due to the limited number of domestic suppliers in the country. Intensity of Rivalry within the Industry The intensity of rivalry is high in the industry as most of the players are established and offer quality product. The intensity of rivalry in the toy industry is high. Although the number of players are less but still due to low switching cost and standardized product, the competitiveness is high. Threat of a new entrant The startup cost for a toy business is marginally low if the business is of plastic toys. Moreover south Africa being an economically stable country the threat of new entrant is obviously high. In Seychelles, the number of players is limited and the start up cost is also low. In addition, government also supports foreign investment if the business complies with local lawsuits. Hence, the threat of new entrant is estimated to be high. Threat of Substitute The availability of substitutes of toy in South Africa is large in numbers. Hence, it is evident that the threat of substitute will be high. A number of substitutes are also available in this country and therefore the threat high. Porter 1998: - Clusters The success of a business greatly depends upon the extent to which it has access to different support facilities. In South Africa, there are numerous companies which offer raw materials for manufacturing toys. To add to that the country also has a strong technological infrastructure that plays a vital role (Stonehouse and Houston, 2012). These factors can increase the competitiveness of new firms and can reduce operating cost to a large extent. In Seychelles, most of the companies imports raw materials from the overseas countries. Hence, considering this facts it is obvious that the new business will be beneficial operates in South Africa. Porter 1990 National Advantage This section will be analyzed through porter’s Diamond model of national advantage. In this analysis, four factors will be considered to identify the competitiveness associated with a firm. Hence, it can be dubbed as a tool to analyze regional level competitiveness. (Source: Markus, 2011) Factor conditions: - The availability of physical resources, knowledge resources and human resources are adequate in South Africa. While, studies show that Seychelles lack the aforementioned factors to the desired level. Demand conditions: - South Africa has a well established market for Toys and as a result of that the buyers always maintain a pressure on the companies to innovate products. In Seychelles, the market is not well established except for the fair it organizes once in a year. Related and supporting industries: - South Africa has well established plastic and other metal industries. In addition, technology industry is also well developed. However, in Seychelles the technology industry is still developing and many resources required for a toy business are imported. Firm strategy, structure and rivalry: - This factor is common in both the countries as in Seychelles and in South Africa the intensity of rivalry is high and therefore companies try to innovate at a quicker rate (Stadler, 2011). Therefore from the analysis it can be said that the toy industry can be highly competitive in South Africa. On the other hand, Seychelles with some of its negative points, it can be said that gaining competitive advantage for the toy industry will be a cause of concern. Conclusion The analysis of the South African and Seychelles Toy Industry through the lenses of Michael porter revealed that both the countries have the potential to offer a good environment for toy business. The analysis of porter’s 5 forces revealed that most of the factors are positive for Seychelles such as moderate bargaining power of buyer, suppliers etc. However, the analysis of the diamond model revealed that the toy industry will gain competitive advantage in South Africa because of the availability of resources, skilled employees as well as high demand. Furthermore, the study has also shown that the supporting industries are playing important roles in promoting innovation as well as taking the industry to the international standards. The South African government is also supportive for new investments in the country, but a new company has to abide by the rules and regulations. Moreover, the 28.3% of the overall population of the country is between the age group 0-14 years (CIA, 2013). Furthermore, urbanized population is 62% which is again a positive factor for the new business ventures. On the contrary, out of 90,846 populations, only 21.2% belong to the age group of 0-14 years and 53.6 % are urbanized people (CIA, 2013a). Hence, considering the results of the analyses and other external factors, it is strongly recommended that the business must enter into South African Environment. Recommendations The following are the recommendations for doing toy business in South Africa: - The company is strongly recommended to analyze the external business environment of South Africa such as its economical, political, legal and environmental factors before framing the business strategy. The company should also carefully select the mode of entry. It is recommended that they should enter into a treaty with one of the established players of South Africa. This approach will not only help in mitigating the market risks but will also help in complying with the rules and regulations. References Barney, J. B., 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17 (1), pp.99-120. CIA, 2013. Africa: South Africa. [online] Available at: [Accessed 31 October 2013]. CIA, 2013a. Africa: South Africa. [online] Available at: [Accessed 31 October 2013]. Euromonitor, 2009. Toys and Games 2010: Trends, Developments and Prospects. [online] Available at: [Accessed 31 October 2013]. Hill, C. W. L., and Jones, G. R., 2012. Strategic Management Theory: An Integrated Approach. 10th ed. Connecticut: Cengage Learning. Markus, G., 2011. Measuring company level competitiveness in Porter's Diamond model framework. [pdf] Available at: [Accessed 31 October 2013]. Pierstransportation, 2012. Decrease in China’s Toy Market Share [online] Available at: [Accessed 31 October 2013]. Porter, M. E., 1979. How Competitive Forces Shape Strategy. Harvard Business Review, March/April 1979. Porter, M. E., 1985. Competitive Strategy. New York: Free Press. Stadler, C., 2011. Enduring Success: What We Can Learn from the History of Outstanding Corporations. California: Stanford University Press. Stonehouse, G., and Houston, B., 2012. Business Strategy. 2nd ed. London: Routledge. Toyfair, 2013. Spielwarenmesse® reaches out to the Seychelles. [online] Available at: [Accessed 31 October 2013]. Read More