Generalizes on the best strategy to enter the market, e.g., visiting the country; importance of relationships to finding a good partner; use of agents.
Because the South African market is sophisticated, entry should be well-planned, taking into consideration the following factors:
- the demographic income distribution pattern where 10% of the population earns 45% of national income (Gini coefficient is 0.61, which means the closer to 1, the more inequality there is. Zero would indicate there is no inequality;
- the price-sensitive nature of consumer demand;
- a volatile rand-dollar exchange rate (the rate tends to be very predictable over the medium term, but can spike in the short term);
- an 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).
For new-to-market U.S. exporters, B-BBEE guidelines have encouraged 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.
However, the NTM foreign supplier will find markedly different conditions when venturing northwards. This lack of regional integration relates especially to financial services, trade documentation, and road transportation networks, and may have a significant impact on 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 an NTM is selling to the government or government-funded organizations, any local partner should be B-BBEE-compliant and aware of local procurement regulations.
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 detailed description of these services please visit: https://trade.gov/south-africa