Because the South African market is sophisticated, the entry should be well-planned, taking into consideration the following factors:
- The demographic income distribution pattern where 10 percent of the population earns 45 percent of national income (Gini coefficient is 0.61, which means the closer to 1, the more inequality. Zero would indicate there is no inequality)
- The price-sensitive nature of consumer demand
- Volatile Rand-dollar exchange rate (the rate tends to be very predictable over the medium term, but can spike in the short term)
- Unreliable and under-capacitated electricity supply network
- Distribution issues, given that large retail centers are concentrated in five metropolitan regions
- Well-developed consumer protection rules and, recently, better enforcement
- A conservative market bias that tends to stick to known suppliers and therefore requires sustained market development, and
- South Africa’s position as a stepping-stone for developing market opportunities in Sub-Saharan Africa (the marketing mix should anticipate this medium-term option)
- Localization measures such as the imposition of quotas or tariff increases on imports and local content requirements to prioritize local supply chains
- Increasingly complicated mergers and enterprise sales environment after 2019 amendments to the Competition Act
- New data privacy laws such as the POPIA –Protection of Personal Information Act.
Partners For new-to-market (NTM) U.S. exporters, B-BBEE guidelines encourage the use of low-exposure market entry modes by teaming up with qualified local importer-resellers and service providers who act as the prime contractor to the South African government and large economic players.
The NTM foreign supplier will find markedly different conditions when venturing northwards due to lagging regional integration, which impacts financial services, trade documentation, and road transportation networks, and may have a significantly increased risk exposure and the cost of doing business. A selection of one of three low-risk entry strategies (representation, agency, or distributorship) should be considered. If a NTM is selling to the government or government-funded organizations, any local partner should be B-BBEE-compliant and aware of local procurement regulations.
U.S. Department of Commerce Resources
In addition to this Country Commercial Guide, the Commercial Service offices in Cape Town, Durban, and Johannesburg offer many services designed to assist NTMs in developing a market entry strategy into South Africa. For a