Market entry strategy for export to South Africa

If South Africa is a relatively unknown market for you, you need a clear market entry strategy. This may be different from the strategies you have used so far, as the market structure and the competition is different.

Key in your market entry strategy is some market research. Of course there are reports on market size and market growth, but often these are general. Specific knowledge on how your product is perceived and what your competitions is, is harder to get but more valuable.

Oppportunities for international business in South Africa

The people of South Africa are predominantly native with little migratory population. The total population of this vast nation is around 54 million people. Income distribution among this lot is poorly spread.

64% of South Africans live in urban areas of Port Elizabeth, Pretoria, Johannesburg, Capetown, Durban and Vereeniging. The nation’s middle income emerging market is mainly concentrated around these developed cities.

What do people import to South Africa?

Chemicals
Machinery and Equipment
Petroleum Products
Foodstuffs
Scientific instruments

South Africa’s import regulations

South Africa is a member of the World Trade Organisation and its liberal trade incentives are aimed at encouraging development and economic growth. The South African Customs Union allows free exchange of trade between four other countries and South Africa, namely Lesotho, Botswana, Namibia and Swaziland. Normally, most goods are imported into South Africa without any restrictions.

Some however like second hand goods require an import permit. Thus for such goods it is mandatory that importers must have the requisite permit. The International Trade Administration Commission(ITAC) aims at fostering economic growth and development by administering international trade. In certain cases however authorization can also be required from other departments which have control over goods. An example is the department of Agriculture. The validity of the permits generally valid for 12 months. The Tariff Investigations Unit administers three types of tariff amendments. These are:

Investigations of increases in ordinary customs duties
Reductions in ordinary customs duties
Creation of rebate and drawback provisions

The distribution set-up in South Africa

The retail sector in South Africa has changed phenomenally of late. The rapid emergence of the supermarket and hypermarket formats have made it highly convenient to reach the local consumer. The shopping centres in which the hypermarkets are located are mostly found in the suburbs. They store consumer goods that can be self served. The traditional chain that included the wholesaler however has got disrupted due to the new model as the hypermarkets prefer to purchase directly from the distributor.

All outlets which compete with them are thus placed under price pressure. The low margins have achieved high turnover. Choosing the correct distribution channel is of utmost importance in any country and South Africa is no exception.

The South African market is open to trade due to the nation’s aspiration towards economic growth. Their import regulations are flexible and friendly towards most countries, making it a good and reliable trade prospect.

Five ways into a market

Your entry model decides your cost, your speed and how much control you keep: sell directly from home, work with an agent, appoint a distributor or importer, sell online, or open a local office.

Control and investment move together. Direct and online selling are cheap to start and easy to stop. A local office gives full control, but needs staff, registration and often a local company.

Most companies start light, prove that there is demand, and only then invest.

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Entering the market in South Africa in three steps

Step 1

Validate the demand

Check market size, competitors and price levels, then speak with five to ten potential buyers. Their reaction tells you more than a general market report.

Step 2

Choose channel and price

Pick the entry model that fits your margin and your capacity, and calculate your landed cost: transport, duties, VAT and the margin the channel will take.

Step 3

Pilot, then scale

Start in one region or with one partner, agree what success looks like after six to twelve months, and expand the country plan only on those results.