Unit 1 Portfolio TaskPart 1-South Africa-Comparative Levels of InequalityJackCullinane South Africa is the largest economy in Africa, “with thegovernment’s commitment to market economy making it a business hub for foreigninvestment”, (Cavusgil et al.
, 2013).Large mineral reserves and incredibly advanced manufacturing facilities haveled to increased economic growth. However, “history has shown that the economywas built on systematically enforced racial division in every area of thecountry, leaving deep scars of inequality and economic inefficiency”, as toldby (Swartz, 2009).
PovertyAlthough a rapidly advancing developing economy, like anydeveloping country, poverty is a problem seen far too often, proven by theHuman Development Index falling from 0.73 in 1995 to 0.67 in 2003 (Perumal,2004). The increasing numberof people who do not have access to basic healthcare and education, can be seenwith upwards of two million people dying from AIDS (PlusNews, 2006). The mortality rate of AIDS victims who cannot accessmedical attention is 100%, leading to a crisis with regards to health and socialcare problems and increasing population of orphans in the country,approximately two million of them in 2010,(Department of Social Development, 2005) EducationThere has been increased investment in education reform since theend of apartheid. Introduction of education to black citizens has led to a dramaticincrease in the black population completing higher level education. Investmentin education is still necessary, as the core text outlines, as people who comefrom underprivileged neighbourhoods are being held back, with 27% of 6thgrade students being illiterate, compared to 4% of the wealthier population,according to (Spaull, 2013). Hebases this research on the income inequality still faced by people and thesegregation implemented during apartheid, as an area that still needs to beaddressed.
Income InequalityReforms have been introduced to evenly distribute public financesand allow for widespread income equality. Sadly, there is still an unequaldistribution of wealth, with the expanding informal sector allowing the rich tostay rich and the poor to stay poor. As stated in the core text, there is aparallel 1st and 3rd world economy within a singlenation, which, unless merges together, will allow for unemployment rates andincome inequality to rise. Black people are still largely discriminatedagainst, accounting for 90% of the country’s poor population (Anon., 2004).
(Babarinde, 2009) goeson to state that the level of income equality is “particularly acute and basedmainly upon racial stratification”.UnemploymentNearly quarter of a century since the abolition of apartheid, inthe third quarter of 2017, unemployment was reported to be at 27.7%.
BlackSouth Africans are still discriminated against, accounting for 85% of theunskilled workforce and 40% of those unemployed in 2014, (StatsSA, 2014). While unemployment in low-skilled manufacturingmay have increased due to many manufacturing companies relocating to developingcountries that offer higher incentives for business, as found by (Seria and Cohen,2009), the governmentis not doing enough to encourage development of the manufacturing sector,predominantly associated with the black population.As an economy, South Africa has grown rapidly over the last twentyyears. However, as a nation, divisions among the population remain.
Asresources are plentiful, it is the bridging of these differences that willdecide the economic future and development of the nation.Part 2Toyota- ToInvest or Not Invest1) Rising levels of InequalityAs mentioned before, rising levels of inequality will allow therich to stay rich and the poor to stay poor. The pyramid scheme commonly seenin developing countries where the smallest block occupies the rich, the mid-levelmiddle class earners and the large base group of low income earners is aproblem for Toyota and our investors. As a business, sales and profits will notgrow in an economy segmented by income inequality. “Greater inequality reducesour incentive to create new products and establish positive marketingstrategies”, according to (Yurko, 2011).In a report carried out by KPMG, it is stated that if the wealth within acountry is occupied by a small percentage of people, it is saved rather thanspent (borgenproject.
org, 2015). Yetwithout increased expenditure by the overall population, businesses as well asthe economy will not grow. This is a disaster for our company. Unlike indeveloped countries, “where a new product can be marketed to early adopters andthen decrease its price and content to offer it to the majority”, in developingcountries where the wealth is so unevenly distributed, we cannot market to thelower or middle classes. If we invest into an economy that is wrought withfinancial instability we fail to interact with wider society as we only look tomarket to the rich. This could negatively impact our branding. As claimed by Bex Dawkes, impoverished people at the bottom of the ladder, “will not buyanything deemed unnecessary for survival, limiting the ability for growth oforganisations within the consumer-goods market”, (blueprintforbusiness.org, 2017).
2) Wealth RedistributionThe idea of wealth redistribution in developing countries has thepotential to allow for increased investment by our business. While manyemerging economies possess vast quantities of valuable resources that can alsoattract FDI’s, the need for wealth redistribution is the major factor that willinfluence economic growth, as outlined by (Alesinaand Rodrik, 1994), as they concluded that “initial inequality seemed to beempirically associated with lower growth rates”. The KPMG report mentionedabove, goes on to state that, of a developing nations population, if thepoorest of society are empowered through economic growth, it can increaseconsumption and open new competitive markets which will increase economicgrowth (borgenproject.org, 2015).With a nation’s wealth more evenly distributed, we have a larger target marketto advertise and sell our products, as those who earn less tend to spend more.Increased consumption leads to increased sales and profits, while wealthredistribution ultimately leads to reduced poverty.
By following the plan ofPalmolive in India who set up small, local supply chains and distributionsystems, we can create “long term relations” with small-scale enterprises. Thepoor want better opportunities, want to be employed and want to work to createa better life for their family. Chief economist (Francois Bourguignon, 2004) outlined that countries with highlevels of wealth inequality who failed to redistribute wealth and attend theneeds of the poorest in society, “underutilize their productive and growthpotential to a greater degree than countries with fewer poor people or with amore equitable distribution”.In conclusion, the impact upon our organisation and our futuremarketing goals by the headings above, will vary greatly. On one hand, risinglevels of inequality will mean that our company cannot attract a wider marketof consumers as the wealth of the economy is so concentrated to one sector. Thewealth of society tends to invest rather than spend, meaning our product willnot generate large sales.
However, the apparent solution of wealthredistribution can create a more disperse target market ranging from lowerlevel earners to the highest. With those who earn less tending to spend more oftheir income, we can generate much higher profit margins as market specificallypriced goods to subsequent consumers. References:Alesina, A. and Rodrik, D.
(1994)Distributive Politics and Economic GrowthThe Quarterly Journal of Economics,109(2), pp.465-490 Anon. South African Correspondent (2004)United Nationsreport highlights growing inequality in South Africahttp://www.wsws.org/en/articles/2004/05/safr-m21.html Bourguignon, Francois (2004)”The Poverty GrowthInequality Triangle”World Bankhttp://www.siteresources.worldbank.
org/INTPGI/Resources/342674-1206111890151/15185_ICRIER_paper-final.pdf Cavusgil, S. Tamer, Ghauri, Pervez N. and Akcal, AyseA. (2013)DoingBusiness in Emerging Markets 2nd EditionCore Text, pp 145-203 Dawkes, B.
(2017)The Roleof Business in Inequality – A Blueprint for Better Businesshttp://www.blueprintforbusiness.org/role-business-inequality/ Department of Social Development (2005) PolicyFramework for Orphans and Other Children Made Vulnerable by HIV and AIDS inSouth Africa:Building a Caring Society Together https://www.gov.za Perumal, A. (2004) United Nations Development Programme A compact amongnations to end human poverty Oxford University Press, July 2003, pp. 384.
PlusNews (2006) HIV/AIDSbarometer Mail and Guardian November 17–23 Rotsky, N. (2015)Why Inequality is Bad for Businesshttps://borgenproject.org/inequality-bad-business/ Spaull, N (2013). Poverty& privilege: Primary school inequality in South Africa International Journal of EducationalDevelopment. 33(5): 436–447.
StatsSA (2014) https://www.statssa.gov.za/presentation/Stats%20SA%20presentation%20on%20skills%20and%20unemployment Swartz, A. (2009)ANEVALUATION OF THE SCHOOL FEEDING PROGRAMME AS A SERVICE DELIVERY MECHANISM TOIMPROVE ACADEMIC PERFORMANCE OF NEEDY LEARNERS IN BONTEHEUWELWorking paper, pp15 Cape Peninsula University of Technology Yurko, Anna V. (2011) How does income inequality affect marketoutcomes in vertically differentiated markets?International Journal ofIndustrial OrganizationVolume 29, Issue 4, July 2011,Pages 493-503