Introduction (Hollenson, 2011). The element of low consumer spending

Introduction

 

This essay, will
critically analyse one economic, political and social issue that will be likely
to influence a company’s engagement in international and global marketing. The
issues that will be covered are unemployment rates, trading regulations and
access and lastly a cultural issue related to dress codes.  

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

Economic
Issue

 

High levels of unemployment is an
economic factor that can be associated with negative implications. For example,
consumers who are unemployed tend to have lower levels of disposable income (Antonelli & Cannon, 2017). This can
influence consumer’s spending power and patterns (Carbone, 2004). As a result,
company’s may not be able to reach their full financial potential thus,
resulting in a reduction in sales and profits (Kaplan & Menzio, 2015). 

 

South Africa (SA) is an emerging market, who owes its economic progression
to the mining sector (Leon, 2015). Although they have a vast amount of mineral
wealth, South Africa is experiencing high levels of unemployment of approximately
25% whilst youth unemployment is approaching 50% (Gumede & Mbatha, 2017). In
line with this, H (a fashion retailer based in Sweden) is an example of a
multinational corporation who are currently utilising this economic implication
by taking the opportunity to expand their market presence within SA. H
identified the absence of “value” retailers, thus decided to invest in SA with
the help of investors to create a demand for affordable, stylish clothing at
lower prices (Bloomberg, 2017) to incrementally expand their market presence
(Hollenson, 2011). The element of low consumer spending power limits consumer’s
decisions to lower priced outlets, therefore gives H&M the opportunity to
expand their market share in South African (Antonelli & Cannon, 2017). 

 

Figure 1 showing the Uppsala model (Johanson
and Wiedersheim-Paul, 1975)

 The Uppsala model (Johanson
and Wiedersheim-Paul, 1975) propose that organisations initially
enter nearby markets with low market commitment. This can be aligned with
H&M, who gradually became global retailers by internationalizing in stages by
incrementally expanding (HM Group,2014). Therefore, it can be claimed that H&M were able to enter the South African market and expand through
applying their traditional and existing global strategies from previous single entries
(Faku, 2015). However, the model states that in
order for internalization to occur companies must complete each step and expand
based on closer geographical distance to gain knowledge of nearby countries. Cho
and Jin (2015) propose that the theory fails to acknowledge how technology such
as the internet can speed up the process of internalization and skip stages
through online research and communications. This enabled H&M to make a few substantial changes to their strategies such as pricing and
style through market research using the internet, other resources and capital
(Faku, 2015).

 

By 2028,
South Africa is estimated to have a total Gross Domestic Product output of
US$810.6 billion (Gumede and Mbatha, 2017). This suggests that businesses in South Africa will be able
to afford to employ more individuals and increase wages to create a larger
spending power for consumers. The South African government vowed to lower unemployment
rates to 14% by 2020 and 6% by 2028 (Gumede
and Mbatha, 2017). However, Reports show that the unemployment level is projected to increase
to 28.5% before decreasing to 22% (Statista, 2017).  

 

This data should
influence H&M’s marketing in terms of continuing to increase their brand
awareness through advertising and focusing on expanding their outlets and
locating space to increase their availability and visibility. Low-income
consumers are less likely to frequently purchase clothing hence, H should
offer a promotion that gives customers the incentive to return such as a
discount on their next purchase. H should also maintain their current low
pricing strategy to increase brand loyalty, as and fend of competition from
budget fashion retailers Primark (Bloomberg, 2017).  

 

H could
also shorten their supply chains by manufacturing within South Africa to create
employment which can also enhance their brand reputation by helping the South
African economy to become more sustainable. Although H will not generate huge amounts of sales
within the next 3-5 years it can be seen as an investment for the long term
when employment starts to increase (Ram, 2017). As mentioned above, an increase
in employment rates can increase the level of disposable income, giving
consumers a larger spending power. In relation to H, an increase in
consumption in South Africa can also increase H’s sales and profits which
will enable H&M to increase their marketing budget for SA.

 

Political
issue

Political issues
can be defined as a political system that restricts certain operations and
actions (Daviter, 2007). In
2016, the UK voted to exit the European Union to develop an independent-governing
entity in the hope of enjoying the same benefits EU members have such as; the
access of Free-trade. The European Union is
one of four main trading blocs, which Britain could be refused access to once
they officially leave (Peter, 2016).

 

Toyota is a
Japanese multinational automotive corporation, who have manufacturing
operations within the UK (Toyota UK, 2016). Toyota heavily depend on the
European market for importing car components whilst 80% of their vehicles are
exported to Europe (180,00 cars) (Tovey, 2017). Toyota has treated
Britain as their entry to the EU, which means Britain’s restrictions to access of free trade within the EU could create concerns
with the sourcing of labour for Toyotas manufactures which can increase the
costs of supplies (Monaghan, 2017). The rise in tariffs to receive
entry to the European markets once the UK has officially leaft the EU could result
in the total costs of goods also rising (Financial Times, 2016).