ACTION LEARNING PROJECT - W&RSETA - Sisonke.pdf · TAM SISONK : IL P 2016/2017 3 | P a g e Brendon...

TEAM SISONKE: ILDP 2016/2017

1 | P a g e Brendon Liberty, Natashia Smith, Ravin Naidoo, Sally Botha,

Simon Mthethwa, Taelo Tshoke

ACTION LEARNING PROJECT:

FINDING GROWTH

IN A LOW GROWTH GLOBAL

ECONOMY

CONTENTS

EXECUTIVE SUMMARY: ................................................................................................................... 2

LITERATURE REVIEW ....................................................................................................................... 3

RESEARCH PROCESS ...................................................................................................................... 8

Process .............................................................................................................................................. 8

PRESENTATION SLIDES .................................................................................................................. 9

CONCLUSION .................................................................................................................................... 27

BIBLIOGRAPHY ................................................................................................................................. 28

APPENDICES ..................................................................................................................................... 30




EXECUTIVE SUMMARY:

Our topic was to find growth in a low growth global economy. We have narrowed this down

to looking for growth in the perspective of a South African retail company.

The global GDP rate has been growing at a slow pace and the performance for the period

2010-2015 has averaged 2.95%. During 2015 the global GDP was reported at 2.6%. The

following factors within each of the underlying economies have been identified as the drivers

behind the low growth:

Influence of government policies,

Challenging environmental conditions,

Changing socio-economic conditions,

Increased Globalization,

Unstable Political Environments and

Speed to (or lack of) technological advancement

As a result of the global slowdown, the average South African GDP growth for the period

2010-2015, was 2.29%. During 2015, South Africa only showed 1.26% GDP growth. The

South African retail growth has declined from 6.2% in 2011 to 1.9% in 2016.

We have established that most of the driving factors of the low global growth cannot be

directly influenced by the retail sector. As a result, we have looked at what retailers can do to

achieve growth by looking at companies who are currently performing despite the low

growing global economy.

During our local and international immersions, as well as our research, we discovered that

companies, who were applying unique initiatives and operating innovatively versus the retail

norm, were achieving extraordinary results.

We have concluded that if a South African retailer invests in these leading trends, they will

also show growth in a low-growing economy.




LITERATURE REVIEW

During our research we have read various books, journals and articles and below is a list the

most relevant ones with our key learnings.

1. We’re in a Low-Growth World. How Did We Get Here? –

https://www.nytimes.com/2016/08/07/upshot/were-in-a-low-growth-world-how-

did-we-get-here.html?_r=0

Our action learning question speaks to low growth. We confirmed this through

various researches, but the New York Times published this topic about how the world

reached this level of downturn.

The topic also refers to trends which created the downturn such as ultralow interest

rates, gas prices and political influences.

Like most things in economics, the slowdown boils down to supply and demand: the

ability of the global economy to produce goods and services, and the desire of

consumers and businesses to buy them. What’s worrisome is that weakness in

global supply and demand seems to be pushing each other in a vicious circle.

2. GDP & Urban Development -

http://www.worldbank.org/en/topic/urbandevelopment/overview (Oct 2016)

This topic on the World Bank website advises that globally, over 50% of the

population lives in urban areas today and this trend is expected to continue in such a

fashion that by 2045, the number of people living in cities will increase by 1.5 times to

6 billion, adding 2 billion more urban residents.

The above stats will possibly contribute to the economy in terms of increased

productivity & innovation in terms of entrepreneurial and SME businesses that are

formed due to the community needs.

However, the speed of urbanization brings additional challenges in terms of

infrastructure and available jobs.

https://www.nytimes.com/2016/08/07/upshot/were-in-a-low-growth-world-how-did-we-get-here.html?_r=0

https://www.nytimes.com/2016/08/07/upshot/were-in-a-low-growth-world-how-did-we-get-here.html?_r=0

http://www.worldbank.org/en/topic/urbandevelopment/overview




3. Small and Medium Enterprises (SMEs) Finance -

http://www.worldbank.org/en/topic/financialsector/brief/smes-finance (Sept

2015)

One of our key learnings throughout our immersions was that SME influences the

global GDP. This topic’s key learnings were:

600 million jobs are needed in the next 15 years to absorb the available

workforce

SME’s will create 80% of the required new positions

Lack of finance in the SME market which hinders the growth required – Need

innovative solutions to find capital.

4. Factors influencing retail growth in urbanising economies (India), Pay1

Merchant Blog

Growth of consumers & working population: The urbanising population and the

growth of the middle class are key influencing factors on product, demand and

consumption.

Value for money: The impact of organised business on informal retail, the ability

to drive down the retail costs through volume and variety.

New markets: The movement of formal business into new and untapped markets

in an attempt to find inorganic growth.

Foreign retailers: The threat of large foreign brands eating into the available local

markets as a source of new revenue streams.

Technological impact: Advancement of technology allowing urban and rural

purchases through multiple platforms while offering excellent value for money

and large product variety.

Income structure: The increase in the number of working class people has

subsequently increased available disposable spend in both cities as well as

remote areas.

5. http://www.africaneconomicoutlook.org/

This website has in depth detail and specifics with regards to the economic

performance of different African countries relating to the following outlooks:

http://www.worldbank.org/en/topic/financialsector/brief/smes-finance

http://www.africaneconomicoutlook.org/




Macro-economics

Taxation

Trade policies

Human development

Political / Economic governance

o This chapter assesses the governance trends affecting Africa’s

economic outlook by examining the most recent metrics on the

functioning of African public institutions. This aligns with our action

learning topic in terms of the political effects on the African economy

over the past few years.

6. Weapons of Math Destruction by Cathy O’Neil, Crown Publishing Group, New

York, 2016

Big Data analytics is now being applied at every stage of the retail process – working

out what the popular products will be by predicting trends, forecasting where the

demand will be for products, optimizing pricing for a competitive edge, identifying the

customers likely to be interested in them and working out the best way to approach

them, and finally working out what to sell them next. By doing this type of predictive

analytics we would be able to increase sales, thereby helping to grow retail sales

ultimately helping to find growth in a low growing economy.

This book speaks to the algorithms used in terms of data collection and how people

should be aware that every online interaction collects data of the user. Mathematical

models are steadily controlling our lives in terms of the decisions made in different

aspects of your existence.

The data is impacting how companies market to their target audience, but to a certain

extent, these mathematical models are also impacting on society, and the ways that

they are serving to reinforce existing social problems.

7. 8 Steps to Accelerate Change in 2015 by Kotter, Kotter International, 2015

This eBook refers to the 2 fundamental reasons behind most business

transformations. These reasons are:




To increase revenues and profits or to drive down costs

To improve efficiencies and effectiveness.

8. The Multichannel Retail Handbook by Chris Jones, Redsock Management Ltd,

2016 review

This book refers to the planning; implementing; operating and enhancing that a

retailer need to do in order to engage in the online marketing. Topics that are listed in

this book include:

Customer-experience,

Order management,

Marketing Strategy,

Product data management and

IT transformation

For retailers that already trading in the online space, this book also include

suggestions such as click-and-collect-in-store, personalisation, and

internationalisation.

9. Brief review of economic development and growth by Meir Kohn, Whitepaper

2008

This whitepaper discusses the Ricardian theory, which measures economic progress

in terms of output quality in an economy. It sees the economy as a kind of machine

that transforms inputs (Labour and resources) into outputs that are determined by the

quality of technology prevalent in the output processes.

10. 12 Forecasts for the retail industry in 2017, Vend University Whitepaper

This whitepaper explains trends that can be used to improve business in the retail

sector by implementing some leading trends such as:

Creative payment solutions,

Unique in-store experiences,

Personalization, knowing your customer intimately,

Innovative delivery solutions and




Specialization – Ensuring a brand rather than a variety. This is also about

knowing the product in detail.

Complimenting retail habitats and a customer profile focussed mixed retail

offerings.




RESEARCH PROCESS

Team Sisonke used a strategic thinking process to:

1. Understand the topic,

2. Identify the key stakeholders,

3. To identify the key drivers and outcomes and

4. Develop a proposed solution / answer.

Process

During June / July 2016: We developed an infinity diagram (ID) to assist the

understanding of the key drivers in an economy.

After the second block (in July 2016), the team implemented a weekly conference

discussion to move forward on the Action Learning Assignment.

The team investigated performance statistics in each of their individual business

categories. Thereafter the team compared and discussed these comparisons during

our weekly conference discussions.

The team then also investigated and discussed drivers in high performing global

economies/countries.

Between the months of August 2016 and October 2016, the entire ILDP group

participated in 3 international immersions to the following countries:

o China (Cities: Shanghai & Beijing)

o Russia (Cities: Moscow & St. Petersburg)

o Ghana (City: Accra & Gold Coast)

During these immersion processes, we used the ID’s as identified in our own country

during our initial investigations to identify trends that are similar in each country.

The team decided that we need an external expert opinion, we formulated an agreed

questionnaire and consulted with various industry professionals and academics on

their ability for interviews.

Ravin and Brendon secured an interview with Professor Andre Roux, Head of Future

Studies and Economics – specializing in Africa, from the University of Stellenbosch

business school.

In January 2017, we collated all our investigations and research, created a progress

presentation for submission, and subsequently arrived at our answer & rationale.




PRESENTATION SLIDES




We will be narrowing this down to a SA retail company or perspective, so that they

can benefit from the trends and factors identified and to assist them to grow or

improve their sales and profit margins in our current, tough trading environment




World GDP growth slowing down during the past 5 years – 2.63% in 2015




South African GDP slowing down due global low GDP – 1.26%

South African GDP trending below / growing slower than Global GDP




There is a clear slowdown in the SA retail industry vs the past 4 years – Stats SA indicates

1.9% for 2016

Due to the increase of unemployment (currently 26%), shoppers are experiencing a

reduction in their disposable income which affected growth sales in retail platforms in SA.

The migration purchase process from luxury to value added goods, is a clear indication that

shoppers are looking for more value for their spend.




As Global GDP represents an aggregation of the individual countries’ GDP we looked at the

factors that affect an economy in any given country.

Insights gained on each factor are as follows:

Influence of Government policies - We have learnt in China that the Government has policies

which make it easier for entrepreneurs to register companies and therefore drive growth

from the SMEs.

Challenging environmental conditions- We have observed in South Africa how low rainfall in 2015

negatively affected the agricultural sector and resulted in the sector GDP contribution declining by

8.4% from 2014

Changing Socio-Economic conditions – During our visits to Mastercard in China and TNS (Research

Company) in Russia we have learnt about how a growing middle class drives growth in an economy.

Increased Globalisation – The world has become more connected and this has created an inter-

dependency on each country. For example; China is one of the largest importing countries in the

world so if it’s economic activity declines, leading to less imports made, it negatively impacts the

economies of the countries that trades with it.




Unstable Political Environment – We have observed in South Africa how the removal of the

Minister of Finance in 2015 had a negative impact on the economy.

Speed to Technological advancement: During our visit in Ghana we visited the Meltwater

Entrepreneurial School of Technology (MEST) and saw how technology is being used to

stimulate economic growth.

After evaluating all the factors we established that Retailers only have direct influence on

one of the factors.

As mentioned in the previous slide, Retailers can only influence one factor of the 6

factors identified as drivers for the economies.

As a result we had to identify what the Retailers can do get an edge on their

competitors and increase their growth.

We identified Trends from top performing retailers that have led to their success.




Meaning: To showcase product offering through multiple Channels

Example: Alibaba and Suning collaboration

Opportunity: Click and collect




Meaning: Use of large data set for analysis

Example: Mastercard analysis to support consulting services

Opportunity: Instore wi-fi and application to track consumer trends




Meaning: Application of process & tools to enhance supply chain

Example: Li & Fung Model

Opportunity: Apply similar model to take out middleman




Meaning: Combine 2 or more different retail businesses

Example: IKEA Restaurant / Furniture

Opportunity: Designer / Architecture lab




Meaning: Attractiveness of business to consumer

Example: Leroy Merlin 3D offering and visual merchandising

Opportunity: Kiddies corner & Solution offerings (fitment service)




CONCLUSION

Our topic was to find growth in a low growth global economy. We identified 6 main factors

impacting on the growth. We considered the role that retailers can play in influencing those

factors and after careful analysis and research on the factors, we concluded that retailers

can only influence 1 of the 6 identified factors. The solution for the retailers, therefore, did

not lie in trying to influence these factors.

We then shifted our focus to ascertain if there was anything else that retailers could do to

grow, despite low global growth. We reviewed national as well as international businesses

that were achieving extraordinary performances despite the economic climate, in an attempt

to understand what they are doing differently.

Through a research process of a variety of successful companies (such as Zara, H&M,

Wallmart, Massmart: Macro, Shoprite, etc.) and participating in interviews with senior

management in some of these companies as well as industry experts, we have discovered a

few trends that were being applied throughout the more successful businesses. This sets

them apart from the rest and gives them a competitive edge. The trends identified were:

1. Omni Channel,

2. Big Data analysis,

3. Supply chain optimisation,

4. Mixed Retailing and

5. Retail-tainment/Unique customer experience.

We established that the trends had a direct impact on the companies’ financial performance

and have therefore concluded that applying any one of these trends (or a combination

thereof) to any retail company in South Africa will result in them performing better.




BIBLIOGRAPHY

1. http://www.cfr.org/china/chinas-environmental-crisis/p12608

2. https://www.wilsoncenter.org/publication/economic-growth-and-environmental-

security-russia#sthash.2aaL2qqI.dpuf

3. www.wilsoncenter.org/publication/economic-growth-and-environmental-security-

russia#sthash.2aaL2qqI.dpuf

4. www.wilsoncenter.org/publication/economic-growth-and-environmental-security-

russia#sthash.yja9mPee.dpuf

5. www.ukessays.com/essays/economics/positive-and-negative-effect-of-globalization-

on-china-economics-essay.php

6. https://www.weforum.org/agenda/2016/06/8-facts-about-chinas-economy/

7. http://www.worldbank.org/en/country/china/overview

8. http://www.marketwatch.com/story/poverty-in-russia-to-rise-sharply-world-bank-2016-

04-06

9. https://themoscowtimes.com/articles/8-shades-of-crisis-russias-year-of-economic-

nightmares-51328

10. https://themoscowtimes.com/articles/russias-unemployment-rate-to-hit-6-in-2016-

51583

11. https://www.weforum.org/agenda/2015/07/5-factors-limiting-the-impact-of-the-brics-

nations/

12. http://marshallsociety.com/ideas/does-chinas-politics-facilitate-economic-growth-or-

suppress-it/

13. https://en.wikipedia.org/wiki/Anti-corruption_campaign_under_Xi_Jinping

14. http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-

insights/gauging-the-strength-of-chinese-innovation

http://www.cfr.org/china/chinas-environmental-crisis/p12608

http://www.cfr.org/china/chinas-environmental-crisis/p12608

https://www.wilsoncenter.org/publication/economic-growth-and-environmental-security-russia



http://www.wilsoncenter.org/publication/economic-growth-and-environmental-security-russia

http://www.wilsoncenter.org/publication/economic-growth-and-environmental-security-russia

http://www.ukessays.com/essays/economics/positive-and-negative-effect-of-globalization-on-china-economics-essay.php

http://www.ukessays.com/essays/economics/positive-and-negative-effect-of-globalization-on-china-economics-essay.php

https://www.weforum.org/agenda/2016/06/8-facts-about-chinas-economy/

http://www.worldbank.org/en/country/china/overview

http://www.marketwatch.com/story/poverty-in-russia-to-rise-sharply-world-bank-2016-04-06

http://www.marketwatch.com/story/poverty-in-russia-to-rise-sharply-world-bank-2016-04-06

https://themoscowtimes.com/articles/8-shades-of-crisis-russias-year-of-economic-nightmares-51328

https://themoscowtimes.com/articles/8-shades-of-crisis-russias-year-of-economic-nightmares-51328

https://www.weforum.org/agenda/2015/07/5-factors-limiting-the-impact-of-the-brics-nations/



http://marshallsociety.com/ideas/does-chinas-politics-facilitate-economic-growth-or-suppress-it/

http://marshallsociety.com/ideas/does-chinas-politics-facilitate-economic-growth-or-suppress-it/

http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/gauging-the-strength-of-chinese-innovation






15. http://www.mckinseychina.com/wp-content/uploads/2015/07/mckinsey-china-effect-

on-global-innovation-2015.pdf

16. https://techcrunch.com/2015/12/26/china-scaling-the-worlds-highest-innovation-

peaks/

17. https://www.tekes.fi/globalassets/global/tekes/venaja-

raportit/russian_innovation_strategy_2020_in_brief.pdf

18. http://www.russia-direct.org/analysis/russia-eu-economic-relations-assessing-two-

years-sanctions

19. https://www.theguardian.com/world/2016/mar/22/millions-more-russians-living-in-

poverty-as-economic-crisis-bites

20. http://www.eastasiaforum.org/2016/07/30/can-china-eradicate-poverty/

21. http://www.trulyhumanleadership.com/?p=2961

22. Mohammed, A (2015), Deepening Income Inequality, World Economic Forum,

http://reports.weforum.org/outlook-global-agenda-2015/top-10-trends-of-2015/1-

deepening-income-inequality/

23. Rhines, S (25 June 2016) , The National Interest Magazine, These 5 Countries Will

Dominate the Global Economy in 2030, http://nationalinterest.org/feature/these-5-

countries-will-dominate-the-global-economy-2030-16724

http://www.mckinseychina.com/wp-content/uploads/2015/07/mckinsey-china-effect-on-global-innovation-2015.pdf



https://techcrunch.com/2015/12/26/china-scaling-the-worlds-highest-innovation-peaks/



http://www.russia-direct.org/analysis/russia-eu-economic-relations-assessing-two-years-sanctions



https://www.theguardian.com/world/2016/mar/22/millions-more-russians-living-in-poverty-as-economic-crisis-bites



http://www.trulyhumanleadership.com/?p=2961

http://reports.weforum.org/outlook-global-agenda-2015/top-10-trends-of-2015/1-deepening-income-inequality/

http://reports.weforum.org/outlook-global-agenda-2015/top-10-trends-of-2015/1-deepening-income-inequality/

http://nationalinterest.org/feature/these-5-countries-will-dominate-the-global-economy-2030-16724

http://nationalinterest.org/feature/these-5-countries-will-dominate-the-global-economy-2030-16724




APPENDICES

ID 1:

ID 2:




POLITICAL / GOVERNMENT POLICIES

CATEGORY CHINA RUSSIA GHANA SOUTH AFRICA

SMME

Growing SMME’S- 13 000 new companies are registered a day, giving the impression that the process of registering a company is fairly easy. No obvious focus on

growing SMMEs

Most SMME business are funded and supported by the private sector, i.e. large investments by big companies such as Coca-Cola. No real government support for SMME growth.

Government projects such as SETA investments does support SMME growth.

Government encourages growth by offering tax subsidies and some flexibility in tax rates

Banking - Government interference

State owned banks State owned banks Privately owned

Corruption Bribery and corruption

minimised through legal system

Bribery and corruption still prevalent



Imports Produce Own - Largest exporting country

Heavy reliance on imports



Language Dual Language One language

everywhere Plural Language Plural Language

Sanctions No Enemies Sanctions & Reverse Sanctions

Not really prevalent No longer (History)

Ease of entry Easy entrance for

foreign entities into the country

25% restriction on growth from foreign entities

Easy entrance for foreign entities into the country (but lots of legal red tape to clear)

Easy entrance for foreign entities into the country (but resistance from current workforce, labour unions and legal entities)




BRICS Not important to them Benefits from relationship, but not needed.

Not Applicable Placing too much focus

on this relationship - No real influence.

CHALLENGING ENVIRONMENTAL CONDITIONS

CHINA RUSSIA GHANA SOUTH AFRICAN

Pollution Rapid industrialization has resulted in China’s environmental crisis.

Russia's environmental problems include water and air pollution, radioactive contamination, pollution from its space program, industrial pollution, leaks from oil and gas pipelines, and declining biodiversity

Ghana's environmental problems include water and air pollution.

No measurement, but definite air pollution.

Carbon emission

World’s largest source of carbon emissions with air quality failing to meet international health standards

Russian government is doing little to address environmental problems. The Putin administration is struggling with reforms concerning social benefits, the military, privatization of land, and other pressing areas of concern, many of which will have a significant impact on the environment.

Not observed Carbon emission not publicized, but definitely happening

Water

Severe water contamination and scarcity have also compounded land deterioration

Severe water scarcity due to weather conditions

Declining water resources due to droughts.




Stability

Environmental challenges has hurt China’s international standing and has endangered domestic stability.

Leadership / Media involvement

Beijing Leaders appear more determined to institute changes to stem further degradation.

Russian government is attempting to prevent coverage of environmental issues in the media, and is harassing and sometimes jailing environmental activists.

Issues are not widely publicized. While it is not necessarily stopped by the government, very little focus are placed on environmental concerns.

ACTION LEARNING PROJECT - W&RSETA - Sisonke.pdf · TAM SISONK : IL P 2016/2017 3 | P a g e Brendon...

Documents

Transcript of ACTION LEARNING PROJECT - W&RSETA - Sisonke.pdf · TAM SISONK : IL P 2016/2017 3 | P a g e Brendon...