Cracking the South African Market: A Comprehensive Analysis of Entry Strategies for ADNOC

Table of content

Introduction and Industry Analysis

Country and Market Analysis

Market System

Inflation Rate in South Africa

Private Sector Debt

Corruption Levels

Competitor based Factors

Business Related factors

Labor and Cost of Establishment

Target Market

Market entry strategy

Exporting

International Competitive Strategies

International Human Resources Strategy and Organizational Structure

Conclusion and Organization

 

Introduction and Industry Analysis

This report contains the analysis of the modes of entry into international markets by ADNOC. The chosen market is South Africa. The report contains an analysis of the destination country and the strategies that would be adopted by ADNOC, external factors, competitor based factors, and business-related factors. It also covers aspects of the target market and positioning of the company products, entry strategies, international competitive plans and international human resources strategy and the organization structure. The last part is the conclusion, which entails general environmental assessment. The industry environment in the South African market is composed of competition from Iran companies that face a threat of business closure due to the suctions faced by Iran. The customers are majorly domestic and commercial users with the commercial consumers having the highest consumption. There is political good will in the country and the country remains peaceful, providing an enabling environment for the operation of Abu Dhabi National Oil Company.

ABU DHABI NATIONAL OIL COMPANY (ADNOC)

Country and Market Analysis

Political Stability in South Africa (there are only 8 factors, I need 10)

The country is a thriving economy that is has had years of peace and stability for a long time. The peaceful transition of South Africa was recognized as a major achievement of the twentieth century, and it has enjoyed political peace since then. The reality in the nation that brought about the possibility of such achievements is still existence and guarantees future stability in the country. The government of South Africa understands that political stability is very important to investor confidence and therefore it is committed to ensuring that the political stability enjoyed remains a guarantee into the far future. The political situation in the country has seen many countries venture into the country including large and longstanding investments by leading European companies and from the United States.

Market System

The Market in South Africa is an accommodative system and permits regional and international operations. The government s of the United Arab Emirates and Republic of South Africa have an agreement that faced out double taxation which makes the South African market a cheaper market to enter. The agreement creates an environment that supports trade and business operations. ( citation)

Inflation Rate in South Africa

South Africa - inflation rate 2028 | Statista

The inflation rate in South Africa is 4.82% presently, and it is expected to go down given the trends in the inflation rates in the past years. The inflation rate in the country was an average of 5.15% in 2009 and was 2.90% in 2011. According to Friedrich (2016, p.13), an inflation rate of below 3% is acceptable for economic growth and the trend that is seen in the rate of inflation in the country shows that it is headed in the right direction. Its current rate is favorable to investment and entering the market will be of a positive impact to Abu Dhabi National Oil Company.

Private Sector Debt

This entails financial resources availed to the private sector by corporation through such methods as loans, purchases of nonequity securities and trade credits. Loans given by the Republic of South Africa to private sector went up to 3135392 ZAR million from 3106156 ZAR million in February and January respectively. ( citation)

Corruption Levels

Corruption entails the occasions of using public resources for personal or private purposes, cases of bribery and favoring people and institutions improperly (Ali et al. 2016, p. 21). Even though South Africa has an index 4.3, the country has an anti-corruption framework, and if the laws are adequately implemented, the country will achieve tremendous strides towards stamping out the corruption menace in the country.

Competitor based Factors

The Republic of South Africa imports its petroleum products from Iran, and that makes Iran the only competitor nation in the export of petroleum products. There is a great need for oil products given that the country has a very high consumption rate of petroleum products. The industrialization rate in the country is rising, and that makes the market attractive. The fact that imports are only from one country makes it easy to enter into the market with a better strategy. Abu Dhabi National Oil Company stands a better chance to outdo Iran given the political conditions in Abu Dhabi and in Iran. According to Flak, (2016, p.1), South Africa has come under Western pressure to stop importing crude oil from Iran as part of the world agreement to sanction Iran to halt its suspected pursuit of nuclear weapons. Such measures present an opportunity for ADNOC to succeed in the market.

Business Related factors

Trade Barriers

Trade barriers refer to restrictions issued by one country to other countries that limit import from the undesired trade partners, or stopping import specific products into the country (French, 2016, p.32). The Republic of South Africa has no trade barriers limiting the United Arab Emirates or Abu Dhabi from exporting products into it. Petroleum products are South Africa’s critical products that have no restrictions that limit importation.

Labor and Cost of Establishment

The labor potential in the country is vast and cheaper to acquire. The country has a competent education system that produces skilled labor force that can fit in the industry with the very little orientation to ADNOC way of business operations. The cost of starting any business is affordable, and the countries subsidy provisions. The transport and communication systems in the country are well established to support business operations.

Target Market

The target of customers of ADNOC covers residential, commercial and transportation users. The commercial use of products like gasoline includes use in automobiles, kerosene-type jet fuel used in powering turbines and many more products with different purposes. Gasoline is widely used compared to other products.

Positioning refers to the perception or the place occupied by a brand in the mind of the customer about that of the competitors (Parlabene, 2016, p.22). Positioning is a product’s functional characteristics compared to that of the competitors (Root 2016, p. 38). ADNOC should ensure the consumers in the South African market have a positive perception of the brand of the company and perceive its petroleum products as more effective, cheaper and lies environment unfriendly.

The petroleum products of the company will be advertised through media that is widely accessible to the consumers and any other media that would play a role in reaching the ultimate consumer. Commercial adverts will be run in the television programs of the country; audio radio communication stations will also be implemented. Billboards portraying the existent and benefits of the product will be erected by the roadsides and flyers will be produced and distributed to potential customers in a bid to create awareness of the product. The main aim of advertising in the early stages will be to create awareness of the products and services.

The strategy will aim to edge out Iran companies. To achieve this company will adopt promotional methods that will reach the majority of the consumers effectively. That is newspapers, internet sources, and audio-visual modes. The pricing policy will also be a predatory pricing policy, charging prices slightly lower than that charged by the competitors. The product will be designed in attractive cans and containers to sway consumers taste and preference to the products, and the filling stations will be strategically located on the side of the roads and made spacious to accommodate all types of vehicles without causing congestion.

Market entry strategy

Why You Need A Market Entry Strategy | Indonesia Global Law Firm

Market entry strategies refer to the modes or strategies that companies that seek expand their operations into international markets may implement to successfully enter those markets (Harzing, 2016, p.12).

Exporting

The merits of exporting include reduction of possible risks of international operations, provide a chance to learn more about the foreign market before investing, and reduced risks in production since it is done at home. The disadvantages include the possibility of returns being affected by the inflation rates in those countries, effects of changing foreign policies due changing governments among others.

Piggybacking

Piggybacking enables a country with less exporting skills to export through another company, reduces potential risks of export operation and enables smaller companies to take advantage bulk buying. The disadvantage, however, is that being accountable depends on the firm acting on behalf of the other.

Countertrade

Countertrade allows a company to expand in nations with less competition; it can be applied to encourage home companies with limited raw materials, and provides a foundation for reciprocal trade. The disadvantage is the method is costly to consumers since quality is not to international requirements; it is hard to set prices.

Licensing

Licensing is a favorable way to start in the foreign operation, it allows both linkage partners to make maximum profit out of their marketing efforts, and the capital involved is not limited to international transactions. However, it is a limited form of operation, returns from marketing may be lost, and the license is also short.

 

 

Joint ventures

It gives the involved companies financial strengths, it may be the only mode of entry, and facilitates risk sharing, and knowledge sharing. The demerit, is that full control of management is not in the hands of involved parties, it will be difficult to recover capital if need be.

It would be of a great positive impact if Abu Dhabi National Oil Company invested in exporting to more and more countries. In exporting, manufacturing remain home-based Thus, a risk is reduced. Exporting also gives an opportunity to discover the overseas markets before investing those foreign countries. It would also reduce the possible risks of operating internationally. It would also be advantageous to be an aggressive exporter. According to Pagell (2016), exporting incorporates a partnership between exporter, importer, government, and transport. There is a high risk of failure without involving these four elements.

International Competitive Strategies

The strategy that the company will adopt is strategic alliances with foreign partners. The method is chosen because it will enable the company to gain wider access to attractive country markets, it will also allow acquiring of production economies of scale, and it bridges the expertise gap that may arise. The strategy comes in handy to cut costs as distribution services are shared as well as dealer networks.

International Human Resources Strategy and Organizational Structure

The international staffing policy involves acquiring prospective candidates from within the new market and from the home country. The recruits are then trained within the company premises about their to-be roles. Hiring in the foreign countries will be contracted to hiring firms from those respective countries. The hiring companies will act as guarantor to the recruits. The challenge faced in the staffing policy is the low application rates by the potential recruits due to minimal access to technology since it is mainly done online. People who understand them fully, their cultural beliefs, strengths, and weaknesses would be able to choose the applicants better. In case there will be a need for change, the company will adopt campus recruitment method, interviewing finalizing students from different universities and taking them up for training and eventually absorbing them fully.

Conclusion and Organization

There are high chances of success of ADNOC in South Africa due to the high demand of petroleum products in the country. The commercial and domestic consumption are very high, and the company will do well to meet these requirements. The competition faced in the country is not stiff, and that makes it even easier to succeed. As the world pushes the South African government to cut oil imports from Iran due to imposed sanctions, the company will be an easy an perfect alternative for its oil products demand. The company will respect and uphold the cultural values of South African people. The company will adjust appropriately to changing economic environment, taking advantage of favorable policies to expand its distribution channels and when faced with economic slumps such as depression, the company will apply various strategies to cut down on expenses to survive the harsh conditions. When confronted with legal issues that are harmful to the company, it will use the legal action to solve the problem using the provisions of international and local laws of South Africa.

 

 

References

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Flak, A. (2016). SA gets more oil from Iran despite US pressure | Archive | BDlive. Retrieved from http://www.bdlive.co.za/articles/2012/04/30/sa-gets-more-oil-from-iran-despite-us-pressure

French, S. (2016). The composition of trade flows and the aggregate effects of trade barriers.

Harzing, U. (2016). Understanding Business Strategy: Concepts and Cases. Google Books. Retrieved 20 March 2016, from https://books.google.de/books?id=WmdsrKwYYNQC&pg=PA200&dq=international+strategy+and+entry+modes&hl=en&sa=X&ved=0ahUKEwia7-6HstDLAhUQ0GMKHWyPD3gQ6AEIIzAB

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