1.1 Foreign Ownership: Shoprite brand is South Africa’s largest food retailing which comprises 309 Shoprite outlets. Shoprite goes as back to 1997, started as a small chain of supermarkets. Today Shoprite has managed to increase its operation outside South Africa from one store in Lusaka, Zambia in 1995, to 71 stores in 16 countries, Tanzania being among those countries that Shoprite has its operations.
In December 2001 the first Shoprite store in Tanzania was opened at Pugu Road giving a wide range of quality products at affordable prices. Currently Shoprite have four stores in Tanzania, Mlimani City in Mlimani Mall in Dar es Salaam kilombero in Arusha, Pugu Road and Mayfair Plaza in Dar es Salaam. With a wide range of products and at lower prices, always Shoprite has attracted many customers over the years.
2.0 Analysis of an Industry Structure: 2.1The Industry Examining the Supermarket industry through Porters 5 forces (as shown below) shows that the Supermarket industry is intensely competitive, particularly in the low price segment, this competitiveness results from a high bargaining power of consumers, meaning they are able to shop around and switch at no cost . Despite high capital requirements, the threat of entry from new competitors is high in the supermarket industry, with new planned entrants in the future years.
2.2Threat of Substitutes- over all threat Medium as industry is susceptible to changes in the economy/income.
More people choosing to go to markets and purchase their needs.
Generic substitution- Disposable income spent elsewhere, if economy enters a recession consumers are likely to spend money elsewhere ( small shops rather than in Malls and supermarkets)
2.3 Bargaining power of suppliers- overall supplier power is Low/Medium and changes with the external environment.
Food Producers have high cost of production and supermarket can easily take the advantage of this during a fall.
Large numbers of food producers -Supermarket owners are likely to find the cost of switching to other producer cheaply.
2.4 Bargaining power of consumers – overall consumer power is Medium/High
Consumers can shop around as there are many supermarkets in markets
Low switching costs for consumers- doesn’t cost anything to buy products from Game instead of Shoprite.
Creation of comparison window shopping, advertisement where consumers will easily be able to compare products prices and just pick the lowest price.
3.0 Threat of Entry from New Competitors It is not only current rivals that pose a threat to firms in an industry; the possibilities that the new firms may inter the industry also affect the competition. Any firm should be able to enter and exit a market and if free entry and exit exists, then profits always should be normal.
The capital requirement to enter the industry is high
Many supermarkets planned to be opened in the future.
Differentiation: There is no gap in the market- already many existing supermarket.
Expected retaliation is high from existing Supermarket, could drop prices to squeeze out new entrants, as demonstrated with Nakumatt
3.1 Competitive Rivalry- HIGH High threat of substitutes
Competitors are in balance
There are high fixed costs
There is no differentiation in the industry
4.0 External Analysis Through analyzing the external environment is easy to understand the industry and make strategic decisions. The purpose of Shoprite external analysis is to understand what may affect the future of the company as a whole. Pastel Analysis:
4.1 Political: these refer to government policy such as the degree of intervention in the economy. In the last five years the government of Tanzania has been amending its foreign policies by providing conducive environment to encourage multinational companies and investor to invest in Tanzania. This is an opportunity for Shoprite since there is going to be free movement of labor, goods, within the east Africa countries.
4.2 Technology: New technologies create new products and new processes. Technology is fast growing in Tanzania such as introduction of ATMs, increase in number of telecommunication companies, with recently introduction of Fiber Optic internet which will give more access of information to individual people. This is opportunity to Shoprite to use the advantage of internet, radio, and magazine to market its products. For examples in last ten years there were few ATMs which bores many customers and businesspersons, because they had to make a huge line into banks for them to do transactions but now is not the same people are more reliable using ATMs which facilitates transaction. Also Telecommunication companies have introduced new technology of money transfer such as M Pesa and Zap which give easy movement of money. On line shopping, and computer aided design are all improvement s to the way the business is done as the result of technology. Through technology Shoprite can reduce costs and encourage innovation. These developments can benefit consumers as well as the organization produce the products.
4.3 Economical These include interest rates, taxation changes, economic growth, inflation and exchange rates. The increase of fuel cost can result into high cost of production hence affects the price of product to final consumers. The global economic crisis can have a huge impact to Shoprite as multinational company in its operation likewise to demand of individual is ultimately to be affected.
5.0 Internal Analysis To understand a successful of Shoprite, the internal strategic capabilities must be understood. This section will focus on identifying the key internal strengths and weaknesses (from SWOT). This will be achieved by examining the resources and competencies for Shoprite, applying the VRIO model to these resources and looking at the performance of various business functions within the organization.
An organization’s resources can be Physical, Reputation, Organization, Financial, Intellectual and Technological (Johnson et al, 2004) the below analysis shows the full extent of Shoprite resources and capabilities and only the key factors will be drawn upon here.
Although Shoprite has very strong branding and recognition across Africa, it does not necessarily mean that they have a good reputation or good customer relations. It is one of the low price profit making in the supermarket industry yet they have a bad reputation for not purchasing local commodities and have bad relationship with local farmers who produce vegetables. Most clients complain much on how Shoprite operates, they feel the company just takes their money and have nothing in return to society.
As referred to earlier, Shoprite has a very simple, yet effective organizational set up based on the low cost strategy which the owners feel is key to Shoprite success.
5.1 Key factors of this strategy are: Improve distribution – over the past 12years, Shoprite has expanded its thrust northward beyond South Africa borders. Currently, 198 corporate outlets serve consumers in 16 countries outside of South Africa (fastmoving, 2009). By open more outlets allows Shoprite to widen market share which increase company profit.
By using differentiation strategy Shoprite have been able to segment its customer in different categories. Shoprite is composed of the group checkers, checkers hipper, Ushoprite save, House and home, Ok furniture and Ok franchise Division , for example Shoprite focuses on customers from the middle to lower-income consumers in the living standards measurement 3to8.
Low prices – this has attracted a large group of customers who their purchasing power is low.
6.0 SWOT ANALYSIS 6.1 Strengths and Weaknesses The key strengths identified from Shoprite’s internal operations are their stable financial position, good branding, a responsive organizational structure, a strong management team and strong distribution operation. With the strong financial, good branding and strong management has been a motivation for the company growth. Currently Shoprite has 382 operation stores across Africa and one in India. The group continued to extend merchandise ranges upward to cater for a broadening middle class, while retaining the full selection of staple products (Annual report Shoprite). Despite the current depressed economic environment Shoprite is looking five years ahead in planning for growth, intends opening 23 stores in the 2010 financial year.
The main weaknesses are its bad reputation for not purchasing local commodities/ products and bad relationship with the local farmers and individuals. Shoprite is taking advantage of its strength (low price strategy) and key competencies (strong brand) to sustain a competitive advantage. The Shoprite (and management team) may not have the best reputation in the industry but does this matter? Shoprite has been extremely successful financially and look set to continue this success in the future, high profit and keeping costs low is the strategy that they are successfully achieving.
6.2 Opportunities and Threats After examining the Strength and weakness it can be seen that there area a variety of factors that need to be taken to the consideration. Shoprite has already taken advantage of key opportunity buy branding and positioning itself as the first Multinational Retailing in Tanzania. After Government provide good business environment such as laying of goods regulations many foreign investor have been interested to invest in Tanzania this can be a threat to Shoprite. Also by introduction of the many banks in Tanzania that has enabled many local entrepreneurs to get loans and open mini supermarket in small towns which is the big threat since more people will be motivated to go those stores and that can reduce Shoprite market share. The key opportunity identified in this market are the increased target market from EAC (East Africa Community ) expansion previously there were only three country but now there five countries where Sudan in the process of the joining the community . Since there will be free movement of people within the membership countries hence will increase demand. Shoprite have already taken advantage of internet expansion and this will provide further opportunities ad the internet expansion (introduction of Fiber Optic) that allow online Shopping ( E commerce ) .
6.3 VRIO: “A model which allows insight into whether the organization’s resources and capabilities translate to the potential for sustained competitive advantage” (Johnson et al)
7.0 Key Competencies: Good brand awareness-Shoprite has a strong presence in the public eye which has increase awareness its brand across Africa. Likely in Tanzania Shoprite has large market share because it was the first large Supermarket to be opened.
Organizational Structure-Through jointure and opening of many branches and using low price strategy has helped Shoprite to satisfy customer needs.
Advance Technology-All Shoprite supermarkets, wherever they are` located, are now equipped with the latest scanning equipment and linked directly to the group’s main compture centre. This direct access has great improved stock control and replenishment and using the sales analysis provided enabled store management to monitor closely consume acceptance of product not previously available in a particular outlet.
Financial Stability-Despite the groble Economic recession the company total turnover has grown to 20.9%. It benefited from the employment created by the mega infrastructural projects being under taken with a view to the 2010 FIFA world cup in South Africa and the increase in the number and size of social grants.
8.0 The Economic Impact of the MNE Mnes may affect many aspects of country’s economy -balance of payments, growth, employment objectives, and so forth. Under different conditions, these effects may be positive or negative, either for the host country or the home country. In addition, potential gains to host countries go up as local environments become more attractive for FDI.
8.1 BALANCE -OF – PAYMENTS EFFECTS Why will Tanzania wants capital inflows? Because such inflows give the country the foreign exchange it needs to import goods and service and to pay off foreign debt. Keep in mind that FDI brings both capital inflows and capital out flows. For the government will be much concerned about the net balance of payment effect and about the possibility that when the books are ultimately balanced, the effect of their net balance of payments may be negative. Let’s see what Tanzania will benefit from MNEs.
A MNE investment in country may result in a significant injection into the economy of the country. This may provide jobs directly of through the growth of local subsidiary business such as banks, insurance. It may be initiate a multiplier process generating more income as newly employed workers spend their wages on consumption.
MNEs May provide training and education for employees thus creating higher skilled labor force. These skills may be transferred to other areas of the country. Often management and entrepreneurial skills learned from MNEs are an important source of human capital.
MNE contributes tax revenue to the government and other revenue s if they purchase existing national assets.
9.0 The Problems of Multinational Enterprises The MNE may employ largely expatriate managers ensuring that incomes generated are maintained within a relatively small group of people. The attraction for the MNE may be the large supply of cheap manual labour who they can employ at low wages. This may contribute to a widening of the income distribution. It will also not lead to the transfer of management skills.
MNE investment in LDCs often involves the use of capital intensive production methods. Given that many LDCs are often endowed with potentially large low wage labout forces and have high level of unemployment this might be considered inappropriate technology. More labour intensive production methods might be a more appropriate option for alleviating poverty and aiding development. Any resulting growth might be considered anti-developmental.
MNEs engage in transfer pricing where they shift production between countries so as to benefit from lower tax arrangements in certain countries. By doing this they can minimize their tax burden and the tax revenue of national governments.
As many MNEs are very large and have considerable power they can next influence on governments to gain preferential tax concessions and subsidies and grants.
Outward oriented economists maintain that the cycles of poverty will not be broken from within the domestic economy. The level of investment needed to raise productivity and incomes is not possible .Thus foreign direct investment through the MNE activity is essential.
By investing in areas and utilizing the factors of production where the LDCs have an absolute and comparative advantage MNEs will lead to a more efficient allocation of the worlds’ resources. However if this leads to overspecialization and overdependence in certain sectors of the economy then the host country will vulnerable especially if the MNE decides for commercial reasons to leave the country in the future.
10.0 Action Plan for Implementation Planning is indispensable for a company, not too ensure that they stick to plan put to know when they are deviating from it. Shoprite would need to develop a board that will deal with improving the relationship with the local communities. It would be advisable Shoprite reduce importing of vegetable from South Africa instead buy form local farmers this will reduce cost of production since all goods will be locally production hence enable to lower price. The key changes for Shoprite’s business functions in implementing this strategy would be for the production department as the majority of others aspects will be handles by the service provider.
11.0 Conclusion MNEs play a major role in the country economy development, whoever the government should be more careful with the MNEs by putting laws that will guide them. Same time government should this opportunity as the key for developing the local industries and businesses which will increase government revenue, hence high Growth Domestic Production (GDP).
Economic Impact Of Marijuana Legalization Economics Essay
Drug dealers in America have mastered the concept of supply and demand. They have identified their target audience and are doing an incredible job at keeping competition down. They rapidly work towards a monopoly in their respective areas. They even keep ahead of the game by obtaining the best product at the lowest price before hiking up the price to potential buyers.
They are running an underground gold mine and the government hasn’t been getting a penny of the proceeds. In fact, the government and taxpayers spend between 20 and 25 billion dollars a year (Osler, 2012), on prosecuting dealers and incarcerating those who possess marijuana. But facts are facts and this is how America works. It may be for this reason that voters in Washington and Colorado decided to legalize marijuana. On November 7, 2012, state legislators in both Washington and Colorado passed an initiative and an amendment, respectively, to allow for the possession, distribution, and private recreational use of cannabis.
From an economic perspective, there would be numerous benefits to legalizing marijuana. The states expect to see a rapid decline in arrests for marijuana possession, saving money from the reduced need for law enforcement for marijuana prohibition. This proves to potentially save Colorado alone an average of $40.1 million, (Stiffler, 2012), in costs associated with incarceration.
Not only will the economic impact of legalization of marijuana help save the government on law enforcement expenses, but it will also encompass the possibility of large sums of revenue from the market supply and demand of the newly legalized product, generating an impressive profit from sales tax. As a new industry emerges within the workforce, desperately needed employment opportunities will arise across the country, stimulating the economy by initially providing 4,200 new jobs (Fottrell, 2012). It will also help upsurge our Gross Domestic Product (GDP), as more goods will be produced and retailed.
The economic impact of the legalization of marijuana covers many aspects of the economy. In Mark Osler’s “U.S. Should Honor States’ New Pot Laws – CNN.com”, Osler discusses the conflict that arises from a state passing a law that contradicts a federal law. He examines the sides of both the proponents and opponents to the federal government cracking down on drug use in Colorado and Washington. Osler goes in depth about how the federalists support the States and want the government to leave them alone to govern their states how they choose, and how the moralists would like to see the federal government enforce the federal narcotics laws despite the voter’s decisions in the states. The article also analyses how harder drugs deliver a lesser punishment than more minor drugs and how drug laws in the past have done little to permanently curb drug use.
“Amendment 64 would produce $60 million in new revenue and savings for Colorado”, by Christopher Stiffler, presents a systematic approach to how the government will benefit from the passing of the amendment. The article discusses the various ways that the legalization of marijuana will positively affect the economy and also describes in detail the how tax revenue will be generated and utilized to benefit Colorado. Stiffler also focuses on the details of the amendment itself and how a shift in governmental thinking can save millions of taxpayer dollars.
Quentin Fottrell’s “How to Invest in Legalized Marijuana”, describes the rapidly growing market demand for marijuana and marijuana related products. He gives descriptions of several marijuana centered companies and offers his opinion on the direction of the economy. Fottrell also mentions how the marijuana market is spreading over to other industries and explains the benefits and pitfalls of investing in marijuana related stock.
“Unperturbed Puffery”, by B.A., is an article that focuses on the likelihood of the Obama administration to enforce federal laws in Colorado and Washington. B.A. takes a strong stance on the issue and sides with the federalists who prefer a hands-off approach from the federal government. The articles examines the costs related to incarcerating people with marijuana related charges and concludes with mentioning how the government should have more important issues to tend to than marijuana possession.
Mike Moffatt’s “Would Marijuana Legalization Increase the Demand for Marijuana?”, answers a reader’s question about the demand for marijuana if it becomes legal. Moffatt consults the experts to form an opinion on the issue. The experts seem to believe overall that demand will increase unless the price goes up too much, in which case it will stay the same. The article also mentions how the legalization of the drug may have the opposite effect because the allure of marijuana comes in part from the fact that it is illegal. Moffatt also looks at other countries experiences with the legalization of marijuana and concludes that legal or not, people will continue to use it.
“Should Governments Legalize and Tax Marijuana?” by Mike Moffatt discusses the economics of drug dealers and compares their profits to potential profits that the government could make by legalizing marijuana. He breaks down the profit percentage from street sales and considers a shift from street profit to governmental tax revenues. Moffatt also considers the health of the consumers and educational benefits that can arise from the legalization of marijuana.
C. Whitaker’s “The Economic Effects of Legalizing Marijuana”, takes a look at the business aspect of legalizing marijuana. The article discusses how the underground business can become legal and even how former underground drug dealers can get off welfare and become legal entrepreneurs. Whitaker also examines the economic impact of the marijuana and how a lowered price would allow for funds to be spent elsewhere in the economy. Whitaker claims in the article that the legalization of marijuana will help put an end to poverty by creating business opportunity for drug pushers and will also save money for prisons everywhere.
As stated before, the economic impact of illegal marijuana comes at an expense to us all. This expense is obtained from the costs associated with cracking down on those who are buying and selling drugs, prosecuting them in the courts, and providing food and shelter for them in jail cells. According to Mark Osler, the amount that has gone towards these efforts has been between 20 and 25 billion dollars a year for the past decade (Osler, 2012). When breaking these figures down, it is revealed that, “12.4% of federal prisoners convicted on drug charges were locked up for marijuana offenses. That’s about 11,630 people, at an average cost of $25,500 to $26,000 per person per year” (B.A., 2012). Multiplying these figures yields a result of more than 290 million spent annually on jailing inmates, at the federal level, who were caught with marijuana. In the grand scheme of things, this is quite a sum of money that could be allocated towards other things.
A reporter for The Economist says that, “Prosecuting people for marijuana offenses is a waste of resources” (B.A., 2012). The reporter’s sentiment is understood based on the fact that, “Four out of Five of the 1.64 million people arrested for drug violations were accused of possession, and half of those arrests were for carrying what were often very small amounts of marijuana” (Osler, 2012). When comparing the effects of marijuana, a schedule 1 narcotic, and the effects of cocaine and opium, schedule 2 narcotics (less offensive), (Osler, 2012), it makes little sense that a substance that has no known scientific death toll, cancer causing side effects, or even evidence of being an addictive substance should cause so many people to be put behind bars at tax payers’ expense. This is one reason why voters have decided to make marijuana legal in Washington and Colorado.
The expense of police in Colorado alone shows substantial potential governmental savings. According to Christopher Stiffler and Colorado’s direct budget costs for enforcing marijuana prohibition, $40.1 million is spent annually enforcing marijuana prohibition, (Stiffler, 2012). This is seen in the chart below, (Stiffler 2012).
Colorado’s direct budget costs for enforcing marijuana prohibition Agency Total spending Percent spent enforcing prohibition Amount spent enforcing prohibition Police $82,676,491
Total $40.1 million As explained on a state and national level, legalizing marijuana has a very positive effect on the police expense, potentially creating a notable amount of revenue from savings alone.
Not only are expenses a detriment from illegal marijuana; but forgone profit is a negative effect as well. An economist named Stephen T. Easton conducted a study using data from Canada to calculate the amount of tax revenue that legalizing marijuana could bring to the government (Moffatt, 2012). The study showed that the average price of .5 grams of marijuana sold for $8.60 on the street with a production cost of only $1.70. (Moffatt, 2012) These figures would amount to a $6.90 profit for drug dealers. Any survivor of an ECON 5003 course would know that with a profit like this, competition would be intense. What keeps these drug dealers with a local monopoly is the fact that the possession and distribution of marijuana is illegal and subject to serious jail time. This risk factor is what keeps others from trying to get in on the action. This also keeps supply restricted and demand high for the product, leaving drug dealers with hefty profits at the expense of the government.
Now that marijuana has been legalized, it is expected that the demand for marijuana will increase. With the risk factor gone, far more people will engage in recreational activities involving marijuana. Drug dealers will no longer make as much profit due to the fact that anyone can potentially sell marijuana. With a larger supply, the prices from the once exclusive drug market will drop drastically resulting in a price much closer to the cost of production.
With marijuana being legal, there will be government run distributers who will, based on basic supply and demand modules, offer the drug at a much lower base price. However, because marijuana will be closely regulated much like tobacco and alcohol, the taxes from licensing and distribution will drive the total purchase price up and revenue will rival that of current day drug dealers. When transferring the profit once enjoyed by drug dealers to the U.S. government in the form of taxes and distribution costs, and leaving transportation and marketing issues behind, the government would end up with revenue of $7 per .5 grams of marijuana, (Moffatt, 2012) With the collection of tax on each marijuana “cigarette” and again leaving transportation and marketing issues behind, this adds up to over a $2 billion profit, (Moffatt, 2012).
Without the legalization of marijuana, the street price of marijuana will stay the same because there is a very limited and risky to purchase supply. The distributors or “drug dealers” enjoy a relatively stable quantity demanded because of this unchanging price. Now that marijuana has been legalized, the demand will increase due to the fact that consumers no longer have a risk in purchasing marijuana. Looking at a supply – demand curve, Figure 1 shows the effect that legalizing marijuana would have. With the demand curve increasing in order to stay with equilibrium, the price equilibrium would increase.
Figure 1: Effect of Legalizing Marijuana Although legalizing marijuana has great potential of increasing tax revenue, a sense of morality is likely to appear due to the perceived negative effect of health throughout the population. With this in mind the government can either decrease consumption by raising taxes or increase it by dropping taxes. Figure 2 shows the effect if taxes are increased and consumption of marijuana is decreased.
Figure 2: Increase in Marijuana Tax As shown by the graph, if marijuana taxes are increased, the supply curve would shift to the left. The quantity supplied would decrease from Q*1 to Q*2. This shift in supply changes the equilibrium from E1 to E2 and the price is increased from P*1 to P*2. Increasing taxes too much can have a negative effect because if taxes get too high marijuana growers will want to sell in the black market to avoid the high taxes.
In addition to law enforcement expenses and forgone profit, another aspect that illegal marijuana hinders is the emergence of a new industry and job opportunities across America. With the legalization of marijuana comes a plethora of career options and job opportunities. Also, those who were previously “victims” of incarceration from the distribution of cannabis can now possibly start a legal profitable business. One such business that has already taken off is the medical marijuana industry. According to Quentin Fottrell from Market Watch, the medical marijuana industry is, “estimated to be worth about $1.7 billion as of 2011”, (Fottrell, 2012). “In Colorado alone, sales topped $181 million in 2010, and the business employed 4,200 state-licensed workers,” (Fottrell, 2012).
The new marijuana industry spans from medical producers, to agricultural-equipment firms, dispensaries, vaporizers, and even edible goods. Producers are now able to ship the drugs out to the customers, as drug trafficking is no longer be illegal. This is one of the many ways new jobs are being created.
The marijuana industry will also raise our Gross Domestic Product because it can be grown and sold here in the USA. According to the United Nations Office on Drugs and Crime, “Illicit drugs accounted for 1% of the world’s GDP,” (Whitaker, 2009). One percent doesn’t sound like much at all, but this 1% is higher than 88% of all countries GDPs in the world (Whitaker, 2009). People participating in the marijuana industry would not only have a stable source of income, but also a legal source that would be taxed.
From the consumer’s perspective, the legalization of marijuana could mean lower prices. Since there will be countless ways for purchasing legal marijuana, more competition will arise which will result in decreased prices for the consumer. Consumers will no longer have to pay such a high price resulting in an increase in their available funds that they can invest, putting money directly back into the economy.
The newly legalized marijuana market also creates investment opportunities. “Medbox (OTN:MDBX) [has] an OTC stock with a $45 million market cap,” (Fottrell, 2012). “Medical Marijuana (OTN:MJNA), [has] an OTC stock with a $69 million market cap, (Fottrell, 2012). And “Cannabis Science in Colorado Springs, Colo. (OTN;CBIS), [has] an OTC stock with a $41 million market cap,” (Fottrell, 2012). These new investment opportunities encourage investors to feed into the economy and stimulate the free market. As old products are losing ground, this new market is rapidly gaining appeal and helping the economy every step of the way.
In conclusion, the legalization of marijuana brings up an interesting opportunity for the government. If they become the suppliers of the good, they can produce on the true supply or marginal cost curve and then replace the cost of arresting and fighting dealers with marijuana revenue. A great deal of tax payer money goes into catching those who buy or sell illegal drugs on the black market, prosecuting them in court, and housing them in jail. These costs seem particularly exorbitant when dealing with the drug marijuana, as it is widely used, and is likely no more harmful than currently legal drugs such as tobacco and alcohol. When looking at marijuana’s effect on the economy as a whole, the positive and lucrative impact cannot be ignored. From the creation of new job opportunities, to the abundant new supply of revenue, and even the savings incurred from removing prohibition, it is clear that the economic impact created by the legalization of marijuana is beneficial to us all.