Sports Direct Expansion: South Africa and Spain

Contents

1. Summary of company’s operations

1.1. Product, place, promotional and pricing strategy of Sports direct

2. PESTLE analysis of South Africa

2.1. Political analysis

2.2. Economic analysis

2.3. Social analysis

2.4. Technological analysis

2.5. Environmental analysis

2.6. Legal analysis

3. PESTLE analysis of Spain

3.1. Political analysis

3.2. Economic analysis

3.3. Social analysis

3.4. Technological analysis

3.5. Environmental analysis

3.6. Legal analysis

4. Advantages and disadvantages of both markets for Sports Direct

4.1. In South Africa

4.2. In Spain

5. Decision

References

1.     Summary of company’s operations

Sports direct is company that is famous for offering a range of products like sporting apparel, footwear and equipment that are offered through predominant fascia named as SPORTSDIRECT.COM. Sports direct also contains fitness clubs like gyms, they have almost 31 gyms in different areas.

Sports direct is developing the buyer’s intention corresponding to the elevation strategy in European Sports Retail. They are also looking for more and more adaption of scheme to the local marketplaces where they work and it comprises “the Republic of Ireland and continental Europe”. While in other retailing stores of rest of the world there were 49 stores at the beginning of FY18 that were doing transactions as “Bob’s Stores and Eastern Mountain Sports”. They also have 30 trading stores operating as SPORTSDIRECT.COM in Malaysia

According to the CEO of Sports direct, “In Wholesale & Licensing, the Group retains a portfolio of world famous heritage brands, which we offer via our fascias, and also wholesale and license to partners internationally. Our own brands include Karrimor, Slazenger and Everlast. The Group is also proud to have a number of sporting and entertainment personalities as ambassadors, as well as supporting sporting events and venues” (model, 2018).

1.1.Product, place, promotional and pricing strategy of Sports direct

• Sports direct has a focal point on making the products for targeted customers like ‘sporting goods’, ‘sports apparel’ and ‘footwear’. On the other hand, reorganization of the existing marketing scheme is necessary as basically, in view of the fact that giant population of students is at Brunel and they have keen interest in sport, so the sport store should be located there as “Brunel University do not see the brand ‘Sports Direct’ in the form of posters, events, online media, sponsorship, etc on campus”. (UKEssays, 2013)
• Elevation strategy of sports direct persist do effort in developing their offer to buyers across all of the networks, involving “marketing, social media, product, digital and in-store”. As it makes able the organization together with the third party brand associates to attach with buyers by means of a reliable influence with the help of numerous stages, involving “online, mobile, and on the high street”.
• According to the UK Essay (2013), “Retailing 3rd party brands along with in house brands. Good profits from 3rd party brands but directly selling own brands giving greater margins and more competitive pricing and promotions. The competitive pricing and promotions can not only be associated to direct selling but also the optimal operational processes in place. Group operating costs increased 1.4% to £431.0m (2009: £425.0m). Retail division operating costs were well controlled and increased by only 3.3% in the Year, despite an increase in floor space of 5.2% and a rise in sales of just under 11%”.

2.     PESTLE analysis of South Africa

2.1.Political analysis

• The political environment of South Africa is frequently surrounded by “corruption, mismanagement, political intolerance, popular protests, and violence”. All of these issues frequently make economic growth as well as development of the country slow down.
• For the reason of government intervention, endearing the assurance in addition to support of ordinary people as well as investors with respect to the political dares turns out to be one of the very vital task for the business dealers of South Africa.
• Due to deteriorating or insufficient worldwide and local organizations’ “e.g. the UN, IMF, NATO, etc.”, they are making contracts or associations weak and also creating failure of belief on the transactions which is ultimately rising the worldwide control deficiency and avoiding effectual remedies to worldwide issues (Mobius, 2017).

2.1.1.      Effect on new business

All these issues involved in political environment can create issues for business to get trust of general public and investors to start a new business there as level of gaining trust is decreasing there due to corruption in dealings, violence, protests and intolerance factors. Furthermore, unions like IMF are also lacking behind in resolving these issues but now the president of South Africa is taking serious actions on it which can make political instability in stabled form.

2.2.Economic analysis

• After that another factor in the PESTEL analysis of South Africa to deal with is the economic environment of South Africa. In terms of nominal GDP, South Africa is the 34^th biggest economy in the globe. According to the survey of June 2018, the GDP level in South Africa was about 371 billion USD. Later than in the fourth quarter of 2017, it started growing by 3.1%. While in the first quarter of 2018, the economy of South Africa started slow down. On the other hand, many forecasters and economists consider that the financial system of South Africa can probably grow up at a speed of 3.7% or even more in the upcoming period.(Times, 2018)
• According to PwC (2018), “Corporate income tax in South Africa for both resident and non-resident companies for tax years ending between 1 April 2018 and 31 March 2019 is a flat 28%. However, small businesses pay a lower rate of tax. Similarly, there are some special rates for certain industries e.g. mining and long-term insurance. Individual income tax starts at 18% and goes up to 45% depending on the amount an individual earns”.
• In addition, the quantity of middle class population is also growing as well as income level of people is also increasing in the economy of South Africa (PwC, 2018).

2.2.1.      Effect on new business

In accordance with the economic analysis of South Africa, it can be noted down that economy of South Africa is improving time by time and there is chance of even more enhancement in GDP level by 3.7% which is showing good opportunity for the people who wants to do business there. Moreover, tax rate for traders is 28% but depends on the scope of the business as if it is at small level then tax can be decreased plus the income level of people of South Africa is also increasing and all these prospects are showing a good sign for starting business over there.

2.3.Social analysis

• According to BBC (2018), “Nelson Mandela’s South Africa is often referred to as the ‘rainbow nation’. Archbishop Desmond Tutu first coined the term to describe South Africa’s multicultural diversity. There are 11 official languages in the country and Christianity, Islam, and indigenous beliefs are the major religions. As of April 2018, the total population of the country is 50.7 million. Life expectancy for men is 53 years, while 54 years for women” (BBC, 2018).
• On the other hand, there are few great confronts that South Africa is facing these days. For instance, “unemployment is high and the public health system is ailing. Social mobility and economic growth are often halted by poor and inadequate infrastructure”. South Africa continues as an alienated community along with increasing pressures among migrants from many other distant areas of South Africa as well as from the nearby societies (African, 2017).
• But by placing these confronts to one side, South Africa is offering superior business chances these days in many industries for example “building and construction supplies, eye care, beauty and cosmetics, automotive, athletic, telecommunications, education and utility services”. Residents in broad-spectrum in South Africa wish for improved culture for their family, fostering employment chances as well as more rapidly economic expansion that put forward grand chances for both restricted along with global companies.

2.3.1.      Effect on new business

By analyzing the social environment of South Africa, it can be considered that there is easy to do business there as many diverse group of religion exist there. Moreover, it is also showing that unemployment is high but it is getting controlled by providing great opportunities to the people for employment in the form of fostering business opportunities in many industries which will ultimately enhance employment in South Africa and will further expand business opportunities for new traders.

2.4.Technological analysis

• South Africa is one of the mainly technically highly developed countries in whole Africa. South Africa has produced a huge development in “mobile software, security software and electronic banking services”. A quantity of worldwide technical as well as societal associating groups already works in South Africa frequently by means of subordinate. There are some companies that are taken into consideration for this purpose like “Amazon, IBM, Microsoft, Facebook, LinkedIn, Intel, Dell, Novell, and Apple” (Administration, 2017).
• There is trend of Online shopping which is on the peak nowadays in South Africa. As a result, it is one of the great opportunities in South Africa to do work as online vendor. Similarly, by reason of a quantity of elevated report, “cyber-attacks and other online vulnerabilities demand for IT security products and software is high as well”. It is significant to acknowledge that companies of South Africa trade a large number of ICT items to rising African marketplaces (Kleitman, 2015).

2.4.1.      Effect on new business

It is noteworthy that technological resources in South Africa are rising day by day, which is a great opportunity for online businesses as well as for local businesses to do work smoothly in the presence of highly developed technology in this modern era where technology has great importance. So it is also creating a great opportunity for new business arrivals in South Africa.

2.5.Environmental analysis

• According to the Mobius (2017), “Abundant wildlife, scenic beauty, impressive coastlines, brilliant penguin-filled beaches and vivacious coral reefs have all contributed to the development of South Africa as a tourist destination (Mobius, 2017).
• On the other hand, the country faces some environmental challenges such as water pollution, air pollution, land degradation, solid waste pollution, and deforestation”.

2.5.1.      Effect on new business

By this analysis, it can be said that there are environmental issues in the form of pollution in some industrial areas that can create issues for business to enter and follow the rules and regulations related to CSR.

2.6.Legal analysis

• According to Kleitmen (2015), “Legal environment is the last element to discuss in the PESTEL analysis of South Africa. South Africa encourages Foreign Direct Investment in all sectors of the economy. However, there are some restrictions on foreign shareholders in some sectors e.g. mining, defense, insurance, broadcasting, telecommunications, and banking (Kleitman, 2015).
• Employees receive fundamental protection in South Africa. The Employment Equity Act 1998 (EEA) aims to achieve equality in the workplace by promoting equal opportunity and fair treatment in employment” (African, 2017).

2.6.1.      Effect on new business

According to the legal system of South Africa, it can be analyzed that there is the great opportunity for new business arrivals as FDI is welcomed in this country and there is not any restriction in all industries but in some. As well as there is an Act of equality in the workplace that can make new business arrivals more secured.

3.      PESTLE analysis of Spain

3.1.Political analysis

• Level of corruption and political instability is very high. There is no proper government as no prime minister is chosen still there.
• “Government encourages entrepreneurship and thus it has created a contract that allows the entrepreneurial entity to hire a worker on one-year probation. The drawback of this contract is lack of trained young professionals” (Abad Segura and Valls Martinez, 2018).
• Judicial system of Spain is very slow in making fair decisions and it is politicized.

3.1.1.      Effect on new business

According to the political analysis, it can be considered that judicial system of Spain is not so strong to make fair decisions due to non existence of proper government but in order to improve the economy, opportunities for new businesses are smooth and new dealers are welcomed to contribute in their economy.

3.2.Economic analysis

• Due to the bursting of housing bubble, economy of Spain got damaged but still it is somehow playing the good role and leading as 4^th largest economy in the Euro zone. Nowadays GDP growth of Spain is not so good.
• According to TMQ (2017), “Unemployment rates have come down from a high of 27% to 20% whereas youth unemployment has rose to 45.8%. Spain’s economy has both negative and positive aspects” (Segura et al., 2018).

3.2.1.      Effect on new business

It seems from the analysis that economy of Spain is not so good due to housing bubble and low GDP rate and unemployment rate is also increasing for youth who are the main source of improving the economy of the country.

3.3.Social analysis

• Population of Spain is mature whereas rates of birth have been decreasing and thus it shows fewer workers there and fewer demand for user items. Working environment is severe and bound due to great rivalry.

• Individual dealings plus relations are detained in elevated stead and it shows that awareness is required in improving long-term relations with customers.  As concerned with education, “the Spanish population is highly educated with the majority possessing advance college degrees. Unemployment within youth segment is high so younger skilled force looks for better options outside the country” (Piqueras Alonso, 2018).

3.3.1.      Effect on new business

According to social analysis, population of Spain is low due to which demand of products is also low and there is strong competition which can create difficulty for new business arrivals to start work there. Moreover, it takes time to build relationship with customers so business can take time to establish over there in Spain.

3.4.Technological analysis

• According to Tech survey (2017), “Spain spends about $19.2 billion on Research and Development and comes 16th among top spenders on research. Due to recession there have been cuts in research expenditure but Spain has pledged to increase its budget for research purposes to at least 2% of the country’s GDP.
• The Spanish population is technologically savvy with internet usage rates of 65%. Furthermore, ports and railways are fully developed therefore making movement of heavy industrial machinery very easy across the country” (González Ferriz, 2018).

3.4.1.      Effect on new business

Technological analysis of Spain is showing that technical system is very established there due to investments in research and development and the infrastructure of Spain is also developed one which can make imports and exports smooth through Spain.

3.5.Environmental analysis

• For industrial purposes, there are integrated environmental control procedures, pollution is controlled and environment and society is protected.
• Rules towards CSR are strict and they are needed to be followed in every industry and sector (Børthus et al., 2018).

3.5.1.      Effect on new business

Environmental factors in Spain are in improved condition but new business arrivals need to spend a lot of money in order to fulfill the standards of CSR and to make good position there as well as to attract general public towards them.

3.6.Legal analysis

• Foreign direct investment is allowed in Spain but no contribution is made from the side of government. Businesses are established from the money of investor.
• It takes almost 13 days to start a new business as well as multiple procedures are involved in launching a new business in Spain (Børthus et al., 2018).

3.6.1.      Effect on new business

According to the analysis, it is found that people can start business there but they will not get any help from government in the form of funds and it can create difficulty for new business arrivals. Moreover, procedure to start a new business there is also very long and costly which can increase preliminary expenses.

4.     Advantages and disadvantages of both markets for Sports Direct

4.1.In South Africa

• Advantages: According to the PESTLE analysis of South Africa, there are many advantages to start business over there as government of South Africa is taking great action to control all negative aspects that can impact businesses, economy of South Africa is also improving due to improved GDP, business opportunities are being provided by them in various sectors in which athlete sector is also included and it is a good sign for Sports Direct. Technological development is also very well developed there which can create smoothness for Sports Direct to start dealing in South Africa. Legal system for new business is also smooth and it will not create difficulty for Sports Direct to do multiple procedures.
• Disadvantages: There are also negative aspects, infrastructure of South Africa is not good, and there is issue of pollution due to which CSR standards can be difficult to meet as in order to meet standards high cost can be faced.

4.2.In Spain

• Advantages: In accordance with the PESTLE analysis of Spain, there are advantages but less than that in South Africa. Technology is highly developed there as investment is more in R & D; infrastructure is also good in Spain.
• Disadvantages: As far as concerned with disadvantages, government is not well established there due to which legal system is also poor and for this purpose; a lot of time is required to launch a new business there. Moreover, there is difficulty in making long term customer and dealer relationship as trust level is low there and population is also less due to which demands of product is less and competition is more which can create difficulty for Sports Direct to expand business there in Spain.

5.     Decision

Sports Direct should expand its business in South Africa as there are more benefits in expanding business there due to more superior opportunities, more profitability and less competition there. As according to Porter 5 forces, business can flourish if intensity of competition is less, opportunities are more, profitability is more in the related industry. So by considering all these points, it can be concluded that South Africa is best place to do business for Sports Direct according to the Porter 5 forces.

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