RE: Managerial Economics 515-Assignment 2
Introduction
My country of residence in the United States of America. The target company is a U.S based health care company, Kaiser Permanente. The target for the country for this organization is S.Africa. To comprehend the economic health state of S.Africa, evaluation of major economic indicators, the trends, and the current entry were carried out. The financial health and risk assessment are vital before deciding to launch a business in another country, going international. Risk assessment is helpful in the identification of specific risks within the country; it helps companies to determine how those risks might impact their businesses.
Target Country Economic State
South Africa is a medium-income market. There has been a decline in economic growth and development over the past years. It is ranked among the highest countries in the world in terms of unemployment and poverty. The main economic factors that affect business success are; consumer confidence, unemployment rate, and gross domestic value.
Consumer Confidence
Consumer confidence is used to measure the level of optimism the consumers possess in the state of a country’s economy and its financial state. Consumers’ confidence magnifies the economic state of a country. With high consumer confidence, there is increased spending, which leads to economic growth. Business is more likely to grow and thrive in countries with high consumer confidence. The consumer confidence index of S.Africa is currently -9, a decline from -7; the environment is compared to the United States with 71.8. The government of the U.S has promoted business in the country by maintaining the stability of the currency. The increase of government expenditure in the U.S has helped in stabilizing the economy, which leads to a rise in the confidence of the consumers in the country. The launch of the business in S.Africa will face a lot of challenges due to its low economic health; therefore, it’s not advisable to launch a new business in S.Africa.
Unemployment Rate
The unemployment rate is the percentage of unemployed individuals in the total workforce. High rates of unemployment have a negative effect on the economy; it results in low purchasing power; this has a ripple effect on the economy (Stephen, 2020. Unemployed workers are financially challenged, hence a negative impact on the economy in terms of efficiency in goods and services provided (Elvis, 2020). Similarly, as a high percentage of locally produced goods are consumed locally, lack of employment will lead to a reduction in local consumption of products, hence a decline in the country’s GDP. According to Trading Economics (2020), South Africa’s unemployment rate increased from 27.1% to 29.1% from January 2019 to January 2020. The rise in the unemployment rate, which results in low purchasing power, will harm the healthcare business. In contrast, in the U.S through unemployment insurance, unemployed jobseekers are financially supported by the government, hence increasing consumers’ purchasing power. A large number of unemployed individuals and lack of government financial support in South Africa will reduce the capacity to cater to healthcare services such as health insurance coverage and even pharmacy services.
Gross Domestic Product value
According to Lumen Learning, gross domestic product (GDP) is a primary indicator in the evaluation of a country’s economic health. GDP is a measure of the financial activities in the country; it shows whether a country’s economy is growing or recessing. A growing economy experiences growth in the GDP, while the decline in the GDP indicates a decline in economic growth. The trends in the GDP clearly show a picture of the financial state of a country (Leslie, 2019). According to Trading Economics (2020), the GDP trends in S.Africa, there has been a steady decline in the GDP from $366.3 billion in 2018 to $350billion in the year 2019, with a further projection of a drop in the GDP in 2020. Various factors are attributed to the drop in GDP, such as; a reduction in consumer spending, an increase in tax rates, and inflation. The success of a business depends mainly on the real GDP when real GDP goes up and is stable; companies stand a better chance of hiring employees and also pay higher wages. The target company is a health care system, therefore, considering the high number of skilled manpower required in relation to the declining GDP growth in S. Africa. The economic state of South Africa is not conducive for launching a new business; it is therefore not advisable for Kaiser Permanente to launch its business until the economy stabilizes.
Recommendation
Based on the economic health and risk indicators above, S.Africa is not suitable for an entry business. The high unemployment rate will have a negative impact on the company due to low purchasing power. Equally, a steady drop in the GDP value and real GDP is an indicator of a weak economy. The economic state of S.Africa is full of uncertainties, with the future projection of the situation getting worse. Finally, low consumer confidence will have negative implications on the business. As low consumer confidence is associated with low expenditure, this has a detrimental effect on every form of business as they all depend on purchasing power. The key indicators used to evaluate the economic state of South Africa are the GDP and unemployment rate. The GDP is as it provides a mirror-image of the financial state of a country. The unemployment rate is also essential as it directly affects the consumer’s purchasing power on which the target company mainly relies on. Therefore, my recommendation is for the company not to launch its business in S.Africa unless the current economic trends stabilize.
References
Trading Economics (2020). Retrieved from https://tradingeconomics.com/search.aspx?q=GDP%20value%20for%20United%20States
Introduction to Business. “Economic Environment.”Retrieved from https://courses.lumenlearning.com/baycollege-introbusiness/chapter/reading-measuring-the-health-of-the-economy/
Stephen D. Simson (2020, Apr 15). The Cost of Unemployment to the Economy. Investopedia. Retrieved from https://www.investopedia.com/financial-edge/0811/the-cost-of-unemployment-to-the-economy.aspx
Leslie Kramer (2019, Dec 2). What is GDP, and Why is It So Important to Economists and Investors?. Investopedia. Retrieved from https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-investors/
Elvis Picardo (2020, Apr 28). How The Unemployment Rate Affects Everybody. Investopedia. Retrieved from https://www.investopedia.com/articles/economics/10/unemployment-rate-get-real.asp