International Marketing Assignment: Business Opportunities For Kids’ Eats In South African & Malaysia
Question
Task:
International Marketing Assignment Background
Emerging markets are attractive to internationalising firms as target markets, manufacturing bases, and sourcing destinations. Firms targeting emerging markets must seek reliable information to support managerial decision making. However, emerging markets are characterised by unique circumstances that can hinder a manager's ability to acquire needed facts and figures.
Case scenario
Kids’Eats is an Australian responsible foods company focused on wholesome foods for infants (aged between 0 to 12 months), toddlers (aged between 12 to 36 months), and pre-schoolers (aged between 36 months and five years). A recently launched initiative is a campaign working directly with primary schools as well as children’s organisations to educate primary aged school children about healthy foods and healthy eating. The company has experienced significant domestic growth in the last eight years.
Turnover increased from AUD$3.5 million in the financial year 2012-2013 to AUD$20 million in the financial year 2018-2019. In the same period the number of employees also increased from 10 to 30. Since March 2020, COVID-19 has somewhat stalled the growth of the business. Now in 2021 the Kids'Eats management teams are considering the need to look for an overseas market to maintain future growth momentum.
Task
As the newly appointed international business and strategy consultant to Kids’Eats you have been asked to identify and screen two countries from a list of four emerging markets – China, India, Malaysia and South Africa – that hold the best potential for Kids’Eats. You will need to assess each of the two candidate country markets and recommend the preferred country.
Answer
Introduction
The Australian responsible food company Kids’ Eats examined herein international marketing assignment is planning on expanding to emerging markets as part of their internationalization strategy which would help them make of the incurred losses during the Covid-19 pandemic. Business organizations often target overseas markets as their sourcing destinations and manufacturing bases and is able to expand by seeking reliable information to support their managerial decision making. Kids’ Eats focuses on wholesome foods for infants, toddlers and pre-schoolers and have achieved significant domestic growth in the last 8 years. The company has also worked directly with children’s organizations and primary schools as part of their campaign initiative to educate children on healthy food habits. Between the financial year of 2012-2013 and 2018-2019, the turnover of the company increased from AU$ 3.5 million to AU$20 million while the total employees increased from 10 to 20 in the same period. However, the company faced significant losses since March 2020 due to the pandemic crisis and need to expand to a new overseas market for maintaining their growth momentum. The report evaluates the key business factors of two potential markets and recommends the ideal option for the company.
Screening of Potential Markets
The four emerging markets that were considered for Kids’ Eats were China, India, Malaysia and South Africa due to their potential for developing children education infrastructure. However, China and India being the most populous markets, competition from other companies is intense. For this reason, the key factors of business opportunities for Kids’ Eats have been evaluated for the South African and Malaysian market.
Size and Growth
Malaysia: The total population of Malaysia reached 32.52 million in 2019 of which 8.36% were children between the age of 0-4 years old, which roughly represents the target market population for Kids’ Eats (Statista, 2021). Research studies by South East Asian Nutrition survey revealed that almost 13-17% of the children between the ages of 6-12 were obese or overweight (Karim and Razak, 2019). This provides the ideal opportunity for Kids’ Eats to approach the Malaysian government and educate the pre-schoolers about healthy diet so that the problem can be dealt with early on. The Malaysian government has been trying to address this health concern and would likely consider subsidies for the Australian company in the campaign and business expansion.
South Africa: The South African population is quite diverse consisting of African, White, Coloured and Indian which might be a barrier for the food company due to the variance in food habits. However, the nation’s 66.4% urbanized population can be targeted by Kids’ Eats of which about 28.18% is children below the age of 14 (Heritage, 2021). The 1.43% population growth rate of the country offers a significant business opportunity in the years to come which can be ideal for the expansion of the Australian company (Worldometers, 2021). The size and growth of the target market are essential factors that should be considered by business organizations when expanding to overseas market. Without growth of the customer pool in the years to come, business sustainability might be at risk. Alternatively, due to the strong labour capacity of South Africa, Kid’s Eat can use it as a manufacturing base for expanding other surrounding African nations.
Business Infrastructure
Malaysia: In order to attract foreign investors and businesses, the Malaysian government have invested heavily on infrastructure which would help facilitate efficient business growth as well as higher standard of living for the citizens. Infrastructure is one of the key factors that drive economic growth and hence prioritized in areas like roads, railways, public utilities, water systems, electricity and telecommunications (Mordorintelligence, 2021). In the digital era, most customer purchases are carried on through online payment and Malaysia has an existing and highly functional online payment service which would be helpful for Kids’ Eats. Also, the strong relationship between ASEAN and Australian Trade and Investment can offer the company necessary competitive advantages when operating in the Malaysian market of children health and nutrition.
South Africa: The South African government is putting in their maximum effort to secure a $67 billion of private investment for South Africa’s Infrastructure Fund. In addition to this, the National Treasury of the country has also invested $18 billion over the next 3 fiscal years for improving infrastructure sectors (BloombergQuint, 2021). This part of president Cyril Ramaphosa’s plans to reignite their economy after the pandemic crisis. Furthermore, the Infrastructure Fund would also directly finance projects that are capable of have social impacts. This includes construction of new transport links and student accommodation which improves their internet and water access (Business Leadership South Africa, 2021). As Kids’ Eats have already worked closely with primary schools in their domestic campaigns, the company can take a similar approach with added budget for pre-schoolers education. As the ethnic and black population of the country is currently facing issues with children malnutrition and the government trying to address it, the South African market might be potential target market for Kids’ Eats.
Degree of Economic Freedom
Malaysia: Business investment, both foreign and domestic, is a crucial aspect for business prospect and growth. In fact, the economic freedom to invest in business of a nation contributes greatly towards its overall economic and infrastructural growth. In the 2021 index, Malaysia scored 22nd in terms of economic freedom with a score of 74.4 (Chartingeconomy, 2021). From a business perspective, Malaysian economy is considered mostly free and was reinforced by the multi-year anticorruption plan implemented by the government in 2019 (Heritage, 2021). However, the country still needs to implement a concentrated campaign against other corruptive practices like cronyism, patronage, extortion, bribery and nepotism. Furthermore, since December 2020, the country has experienced some economic turmoil due to the pandemic situation which would require some recovery as well. Kids’ Eats can flourish from such economic freedom when expanding to the overseas market and also use it as manufacturing base and sourcing destination in the Asia Pacific region.
South Africa: On the other hand, South Africa had not always been economically free to conduct business which is also the reason the country was unable to attract foreign investors and companies. However, recent initiatives from the government in 2020 would help reopen the nation to external business entities through greater economic freedom (Roberts, 2021). With an economic freedom score of 59.7, South Africa is ranked 99 in the 2021 index which makes it not so suitable for business operations from the economic perspective. However, with the recent improvement in judicial effectiveness, it has turned out to be one of freest markets in Sub-Saharan African but no so much in the world average (Statista, 2021).
Areas of Vulnerability
Malaysia: Despite its major advantage in growing urbanization and economic freedom, Malaysia still has some major vulnerabilities when it comes to business. Furthermore, Australian firms trying to operate in Malaysia should try to commit to the highest level of corporate behaviour by getting familiar with the Australian laws and penalties pertaining to bribery of foreign officials. In case, Kids’ Eats want to setup their manufacturing base in Malaysia, dealing with construction permits might be a major challenge. The registration process consists of 11 procedures and might take about 2 months to complete (Tmf-group, 2021). Another area of vulnerability is the taxation system in Malaysia where companies need to pay 8 tax payments every year. This might include taxes on vehicles, real estate, interest, etc. and might take an average of 188 hours for the company to process.
South Africa: The major business and operational risk especially for Australian companies is safety and security (Advisor, 2021). Hence, it is generally advised to acquire such services from private security companies for ensuring safety of personnel and property. South Africa also have a high level of crime which is a problem for foreign visitors. The companies expanding to South Africa should also be diligent about protecting their digital data as cybercrimes related to spyware and phishing is quite common in the nation (Tmf-group, 2021). Bribery and corruption among government officials is also problematic and the Australian food company should be careful about its dealings.
Environmental Factors
Malaysia: The external macro factors impact business operations and determine the scope for profitability in the target market (Mageplaza, 2021). The political situation in Malaysia is quite stable but extremely corrupt. Even access to government institutes like hospitals, schools and courts require fees from the citizens. Economically, the country relies too much on its exports and can be considered a middle-income nation. Gas and oil being its primary exports, Malaysia suffers when their prices go down (Open to Export, 2021). One advantage is the low unemployment rate in the country which offers diversified income streams. The technological infrastructure of the country has seen recent developments which has attracted large foreign corporations as well.
South Africa: The South African political environment is subject to violence and protests due to political intolerance, corruption and mismanagement. This in return have slowed down the economic development of the nation. One of the BRICS nation, it has a GDP of $282 billion with a corporate tax of 28%. From a social perspective, the country is referred to as rainbow nation due to its multicultural diversity that has 11 official languages (Open to Export, 2021). Although not so technologically advanced in the world, the country is most advanced in Africa which might make it a great manufacturing base for the Australian company.
Key Driving Forces
Malaysia: When it comes to driving forces behind optimal business environment, e-commerce is the primary factor in Malaysia. The e-commerce sector is an ever-changing industry and helps other businesses to outgrow their competitions in the market. The recent pandemic crisis has further resulted in increased usage of e-commerce and related services. An estimated e-commerce market of $4.3 billion and an annual growth rate of 14.3%, the Malaysian market is a viable one for potential foreign companies trying to expand here (Rank Digital PLT, 2021). The surge of FMCG eCommerce was the main driving factor behind this surge along with increased number of mobile users and social media penetration. Almost 93% of the ecommerce transactions are done by bank transfers or digital payments which might be helpful for the existing revenue model of the Australian food company (Ibrahim, Shariff, Esa and Rahman, 2019).
South Africa: The South African economy and business operations have experienced significant growth in the last few years especially due to some prominent driving factors. The first is the role of the state in influencing the market forces. This was greatly supported by the black economic self-empowerment which addresses the crisis of abject poverty through SA First policy initiative (Politicsweb, 2021). A similar approach was also driven by the accumulation of capital by black South Africans which resulted in a surge of black entrepreneurs in the SME sector.
Trends and Uncertainties
Malaysia: The Covid-19 outbreak and its consequent social restrictions have resulted in uncertain times ahead that would impact the economic and social environment of most nations. The tighter pandemic restrictions from January 13, 2021 by the Malaysian government have made business transactions and operations stagnant in almost all regions. However, being the fourth largest economy in South East Asia, Malaysia is capable of performing strongly due to its strong demand for electronics and other commodities like gas, oil and labour market. April 2021 forecast by the IMF indicated that the country is able to rebound in its economic growth by 6.5% which was down to -5.6% during the pandemic crisis (Spglobal, 2021).
South Africa: South Africa is also experiencing a similar crisis in due to the Covid-19 implications and the uncertainty can affect households, businesses and financial markets. In the household front, the pandemic can temporarily reduce the consumer spending due to the reduction in potential income. Although this can lead to increase in precautionary household savings, business organizations can suffer due to the decline in consumer spending. The effect of the pandemic can also be felt in the business area as well where companies would cut back on production, investment and employee compensation (Bizcommunity, 2021). The irreversibility of large capital projects can be of major concern due to its deep economic impact. Additionally, the cost of credit would also increase with the decrease in policy rates of central banks as investors look for higher rate of return on their capital through higher risk premia. The capital is also shifted to safer asset classes during uncertain times which might make it difficult to expand in this new market.
Demographic Information and Consumer Behaviour
Malaysia: As Kids’ Eats would be entering the foods sector in Malaysia, the consumer behaviour in this context can greatly influence the business profitability. With a 92.5% literacy rate, the country’s urbanized population is well aware of the negative consequences of unhealthy eating habits, especially for children (Dosm, 2021). The recent initiatives by the government to fight obesity in Malaysian school children can also influence consumer behaviour to opt for healthier diets with organic foods. Using a healthy food for pre-schoolers advert campaign can further influence consumer behaviour as the urbanized middle and upper class would shift to the healthier lifestyle.
South Africa: The high urbanized population in South Africa can be quite advantageous for companies trying to enter the food sector. However, the varied ethnic population of the country results in multiple food choices as well as consumer behaviour based on cultural and social factors. Subsequently, the impoverished black population of South Africa is being prioritized by the government to prevent malnutrition of children. This can be useful to influence consumer behaviour in the food sector.
Recommendations
It is quite evident that both Malaysia and South Africa hold the potential to be the ideal overseas market for the Australian responsible food company Kids’ Eats. While Malaysia has larger population with a consumer base with more purchasing power, South Africa has the potential for becoming the manufacturing base for the company when expanding into other African nations. Similarly, although Malaysia has a more robust ecommerce and technological infrastructure, South Africa is undergoing massive economic growth which can offer potential for future profitability and success for the company. Despite such equanimity in business opportunities in both countries, South Africa is subject to more political disturbances, crimes, corruption and other barriers to business growth. Moreover, expanding to the Malaysian market can offer significant entry to other Asia-Pacific nations in the future which have robust economies. Moreover, the economic volatility and ethnic intolerance of South Africa might result in major complications especially in such uncertain times. Hence, expanding to Malaysia should be the preferred choice for Kids’ Eats and the support of the Malaysian government can be acquired as well. The target customer segment should be the pre-schoolers as they are suffering from obesity and require a healthy diet (UNICEF DATA, 2021).
Conclusion
The report focuses on the emerging markets of Malaysia and South Africa and determines the various factors based on which business for the Australian company need to be conducted. The pros and cons of conducting business in both the nations have been evaluated in a comparative manner. Malaysia has been chosen as the ideal overseas market due to its less diverse population, higher purchasing power of consumers and better economic and technological infrastructure.
Reference List
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