This essay is one of the best examples of analysis of different specific kind of risks in political, social and economic environment of South Africa, that greatly influence a company operation.
It critically looks at the political, economic, financial and social Risks and gives insights into how a corporation should position itself in order to gain the best of results in South Africa.
Political risk refers to risks relating to the governance and control of the various peoples in a given nation. The inherent political risks in South Africa have to do with the nature of social exclusion practiced in the country for a long time. However, power is in the hand of a popular the Black African majority government.
The constitution gives a lot of room for strikes, trade unionism and demonstrations, which reignites the strategy used by the Congress and the people power that comes with the current government. This means that a corporation entering the market needs to understand its microcosmic position and make adjustments to meet these elements of favoritism, nationalism, mass action and corruption.
There is also economic risks that are connected with the high cost of doing business in South Africa and other factors like the entry of Chinese businesses who have control of affairs. There are also financial risks relating to credit risk and money transfer issues.
Managing across culures is quite difficult. However, the cultural risk in South Africa is increased by the fact that the cultural diversity is huge.
The World Cup brought South Africa surpluses in its balance of trade in the past year and increased its GDP its previous years’ data. With the weakening US Dollar, a business that seeks to operate in South Africa will find it relatively more expensive to trade in South Africa that it would in other parts of the world. Unemployment Unemployment rates in South Africa currently stand at 25.3% and this is blamed on the people’s demands for high wages and better working conditions than other parts of the world (SouthAfrica.Info, 2011). This therefore presents a labor risk to the nation. This is because these conditions show that clearly, labor is expensive in the country. This therefore means that any business that seeks to open up a branch in this country needs to be willing to pay more for labor. International Trade International trade in South Africa is increasingly becoming skewed in favor of the Brazil, India, China and Russia and nations like China in particular has a lot of control in the affairs of South Africa (SouthAfrica.Info, 2011). This therefore means that any company from a country not in this category risks losing out to the competition posed by these nations that are favoured by international treaty in South Africa. This therefore makes it more prudent for a corporation to consider other international expansion options that makes good use of outsourcing to remain competitive and acquire a favorable image in the South African market. Financial Risks General Financial Risks The World Bank gives South Africa 68% for credit worthiness indicating that although it is a low risk country to do business in there is still some risk to do business there (Adar, 2008) The Currency Risks South Africa’s Rand is quite stable