“If the seller can design distinctive goods or services uniquely fitting buyers’ activities, equipment and procedures, a mutually beneficial relationship will evolve.” (Lamb, Hair, McDaniel, Boshoff & Terblanche, 2000).
Buyers
The information user (buyer) in London has myriad options in terms of information sources. The London Stock Exchange alone publishes a list of 26 registered data vendors (The London Stock Exchange Website, 2003). This has a significant effect on the information vendors, as the Investment companies are cutting out the vendors who cannot offer holistic or market specific content services.
The buyers sit in a very strong position in that they have the power to shop around and go to one of the other vendors should the need arise, although this can be a costly exercise. This situation is compounded by the fact that buyers are requesting shorter contract periods for the vendor’s service and have coupled this with more stringent Service Level Agreements. This does have a negative effect on the management of budgeting and forecasting the annuity income base, however the situation is no different to what is presently being experienced in South Africa.
Porter (1998, p8) states that “It has often been said that satisfying buyer needs is at the core of success in business endeavor”. As a data vendor we have to continually adapt to the markets requirements and create new products or acquire new data sets to meet the demand of the buyers.
This force is closely related to new entrants as it highlights the costs that information vendors are faced with.
Substitutes
The threat of substitute products or services is the weakest of the five forces that McGregor BFA has to contend with. Although there are many vendors in the market, McGregor BFA is well placed to manage this risk. As a market specialist, the company has an advantage in that the products and content focus on a specific Emerging Market. The Competitive Advantage of the business lies in the fact that the products are unique in the South African and Global markets.
Best (1997, p143) states that “The more substitute products available to customers, the easier it is for them to switch.” This intensifies competition and lowers profit potential and industry attractiveness.” McGregor BFA is fortunate in that the unique nature of the products negates the effect of substitute products
In some cases substitution of products is a positive competitive force as users become accustomed to the workings of a particular vendors system. It is difficult for them to change to new products as these products often involve training and consume a lot of the users time. In the larger corporate environments where many users, across multiple departments, use the same system this is commonplace. This type of situation will become more apparent if the business is able to build a strong user base before new competitor products are introduced to the market.
Suppliers
The suppliers to McGregor BFA have strong bargaining power, in particular the financial exchanges and market makers who are the primary data creators. Rosen (1995, p88) states that “the power of suppliers becomes a powerful source when there are few dominant ones and when the products they sell are unique or differentiated”. The suppliers have the power to charge a premium for their information, as there is nowhere else for the vendors to acquire the content.
The suppliers also dictate the manner in which data is sent to the vendors. This is costly for the vendors, as they have to be able to cater for many different data formats (SQL, HTML, and ASCII) and delivery mechanisms (CD, End of Day download, live [real-time] delivery).
The London Stock Exchange signed an alliance agreement with the Johannesburg Securities Exchange in April 2001. This agreement primarily allows the two exchanges to leverage the existing client relationships of the other to increase revenues and to promote trade on each other’s market. This new venture has been a key factor in the decision to recommend London as the destination for international expansion. This venture opens the door for McGregor BFA to target financial institutions and other corporations who have present or future interests in South African Equities.
McGregor BFA can leverage off its existing relationship with the Johannesburg Securities Exchange SA to receive London Equity data. This could be used to enhance our existing data offering and improve our viability in London.
Industry Competitors (Rivalry amongst existing firms)
Porter (1998, p9) states that “Finally, the intensity of rivalry acts similarly to the threat of entry. It determines the extent to which firms already in an industry will compete away the value they create for buyers among themselves, passing it on to buyers in low prices or dissipating it in higher costs of competing.”
This was the most difficult of the forces to measure and understand. However, the business must continue to be aware of the fact that the markets are getting tougher to operate in, with many vendors restructuring operations and some implementing retrenchments to cut costs.
Other vendors have realised that moving their business globally would be the only way to expand. Leo Swiontek, founder of Market Data Professionals, based in Chicago said that “We’re at a phase where we’re serving a particular market and if we don’t want to get passed up, we’re going to have to start expanding into a more global presence.” (Inside Market Data, December 2002).
The Managerial Environment
The Political Environment.
The United Kingdom is a parliamentary democracy. The democracy is entrenched and is sustained by free elections, freedom of speech and open and equal treatment through the legal system. These principles are common with the constitution and democratic goals of South Africa.
The principle behind Britain’s democracy is process whereby a general election is held, a maximum period of 5 years apart, when the people elect representatives (the MP’s or Members of Parliament) to the House of Commons. The House of Commons is formed from 659 constituencies and is the Legislative Authority for the United Kingdom (, 2003).
The present ruling party is the Labour Party who presently holds 412 seats which equates to a majority of 166. The main opposition party is The Tories. 15 other parties hold the balance of the seats.
In the Labour Parties General Election Manifesto (2001), they highlighted ten key goals for the period to 2010. The following four points from the ten defined goals were positive influences on the decision to choose London:
- Long-Term Economic Stability.
- Full employment in every region.
- A modern Criminal Justice system
- Strong and Accountable local Government
The Economic Environment
The British economy has performed well over the last few years and has continued to avoid recession. Over the past twenty years the government has reduced public ownership and has contained the growth of social welfare programs. Services, particularly in the banking, insurance and business service areas account for the greatest portion of the UK’s GDP.
The Governments Contribution
“Economic Stability: We have the lowest inflation since the 1960s. We have lower unemployment in Britain than at any time for 25 years – lower than Japan, America and the euro area. We have the lowest long-term interest rates for nearly 50 years.
Strong Public Services: We’re delivering strong and dependable public services through sustained investment and reform. Investment in public services is growing by £61 billion over the next three years. Of this, 75 per cent will go on Labour’s key priorities of education, health, transport, housing and the fight against crime.
Growth: The British economy has continued to grow uninterrupted in every year of the past six years and has had the longest period of sustained growth for fifty years.
Public finances: The public finances remain sound and on track to meet the Government’s fiscal rules, with borrowing under control and debt lower than in any other G7 major industrialised economy.” ()
The British economy is one of the strongest in Europe with inflation, interest rates and unemployment remaining low. The good performance of the economy continues to complicate the Labour Governments arguments for joining the European Economic and Monetary union (EMU).
“The development of the UK economy following the introduction of the Government’s
monetary and fiscal policy frameworks since 1997 shows how stability has provided a
foundation for a long-term improvement in the UK’s economic performance. This
demonstrates why the Government’s decision on EMU membership focuses on what is right
for the UK economy in the long term. A long-term approach is necessary because of the
distinctive nature of the UK economy – a large economy in the EU with a global outlook – and
the stop-go nature of the UK’s economic history.” (, 2003)
Foreign Direct Investment in the United Kingdom
Figure 3: Foreign Direct Investment Confidence Index (Source: A.T. Kearney. (2002).”Annual Survey of 1000 companies' views of 60 countries.”)
The annual survey of top decision-makers from the world's largest firms, seeks opinions of various FDI destinations, intentions and preferences for future investments. It reveals likely FDI investment flows and factors that drive corporate decisions to invest abroad.
The UK holds third position in the index. Global investors consider the UK the most competitive European market for business over the next three years. More than one-third of global executives interviewed expect to commit investments for the first time in Europe of the next three years.
The EU, Economic and Monetary Union and the single currency.
The United Kingdom has embraced the ideal of regionalism through its involvement with the European Union. The UK joined the EU in 1973. The European Union promotes a culture of unity while always respecting the uniqueness and individuality of the member states and its citizens.
Many Britons remain opposed to the concept of the Single Currency (the Euro). To counter this, the government commissioned research to determine whether a clear case can be made to the public highlighting the benefits of joining the EMU. The report was released in June 2003 and highlights five tests which the UK Economy must meet.
The five tests Convergence, flexibility, investment, financial services and growth, stability and employment. An explanation of these tests follows highlighting the issue and providing a status at June 2003: (, 2003)
Convergence
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Issue: Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis?
-
Status: at the present time, while the extent of convergence with the euro area has significantly increased, the convergence test is not met.
Flexibility
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Issue: If problems emerge is there sufficient flexibility to deal with them?
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Status: At the present time, we cannot be confident that UK flexibility, while
improved, is sufficient. Reflecting this, at the present time, the achievement of sustainable
and durable convergence has not been demonstrated.
Investment
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Issue: Would joining the EMU create better conditions for firms making long-term decisions to invest in Britain?
-
Status: If sustainable and durable convergence is achieved, then we can be confident
that the quantity and quality of investment would increase ensuring that the investment test
was met.
Financial Services
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Issue: What impact would entry into the EMU have on the competitive position of the UK’s financial services industry, particularly the City’s wholesale markets?
-
Status: The Financial services test is not met.
Growth, stability and employment
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Issue: In summary, will joining the EMU promote higher growth, stability and a lasting increase in jobs?
-
Status: Overall, we can be confident that the growth, stability and employment test would be met once sustainable and durable convergence has been achieved.
“Overall the Treasury assessment is that since 1997 the UK has made real progress towards
meeting the five economic tests. But, on balance, though the potential benefits of increased
investment, trade, a boost to financial services, growth and jobs are clear, we cannot at this
point in time conclude that there is sustainable and durable convergence or sufficient
flexibility to cope with any potential difficulties within the euro area. So, despite the risks and
costs from delaying the benefits of joining, a clear and unambiguous case for UK membership
of EMU has not at the present time been made and a decision to join now would not be in the
national economic interest.” (, 2003)
The SocioCultural Environment
The UK has long subscribed to United Nations and Council of Europe conventions which protect human rights and fundamental freedoms.
In October 2000 UK citizens' fundamental rights were embodied in law in the Human Rights Act. This places a code of values at the heart of UK culture and administration and contains 14 articles covering key principles such as the right to life, the right to freedom of expression and the right to an education.
The voice of civil society in the UK is made up of non-government organisations (NGOs) that represent the myriad cultural, ethnic, religious, environmental, academic and other interests of individual citizens. The European Union also plays a significant role in civil society and EU citizens enjoy many social benefits ranging from healthcare to working environment.
Some key issues affecting society in the UK, which has been dealt with at legislative level, are discussed below.
Employing Overseas Workers.
According to the fact sheet produced by Business Link for London (2003), there is an ongoing shortage of skills in the United Kingdom. This has forced many businesses to recruit overseas workers for key positions.
Nationals from the EEA (European Economic Area) are free to work to work in the United Kingdom, but there are certain restrictions when it comes to workers from outside the EEA. At present many employers are not aware of these restrictions and are breaking the law. Further legislative changes are pending and it is becoming increasingly important that employers know how to operate within these rules. This clearly has an effect on the new venture planned by McGregor BFA. It is however a process that can be managed.
The most basic regulation is that it is illegal to employ anyone who does not have the right to work in the United Kingdom. The Asylum and Immigration Act (1996) requires employers to obtain and check certain documents before hiring new staff. The employer is not required to verify the validity of the document but must keep a copy on record.
There are several permits that can be obtained from the British Government that allow Non EEA nationals to work in the United Kingdom and these documents must be presented by potential candidates.
Health and Safety.
Every company in the United Kingdom has Health and Safety responsibilities. According to Business Link for London (2003) every employer has 5 key responsibilities in terms of Health and Safety:
- The employer must register with an appropriate authority, usually the Environmental Health Department of the local council.
- The employer is responsible for the health and safety of everyone affected by the business. This includes employees, people visiting the business and people who may be affected by products or emissions products by the business
- The employer must carry out Risk Assessment.
- The employer must make suitable arrangements for employee welfare. E.g. the employer must provide good sanitary facilities, quality drinking water, adequate lighting and ventilation in the workplace.
- The employer must have Employers Liability Insurance.
The local Environmental Health Department enforces Health and Safety regulations for all service companies within it’s jurisdiction.
Congestion Charging.
This is a concept that is unique to London. The congestion charge has been introduced in a bid to alleviate traffic congestion and traffic pollution in central London. Business Link for London notes in it’s Fact Sheet (2003) that average traffic speeds in London have dropped below 10 miles per hour and congestion is estimated to cost the people and businesses in London between two and four million pounds every week due to late arrivals.
The Technological Environment.
“Over the next five years, expansion in consumer and SME Internet take-up will make e-commerce a fact of life that no business can ignore. All SMEs will require Web sites, primarily as a marketing tool.
Broadband take-up, though slow, will be boosted by BT’s (British Telecom) recently announced price cuts and public sector demand aggregation, and will change our conception of how organisations are structured and run as location and proximity of management lose their importance.
The cost of data storage will fall, and scaled down versions of business process software will become available, enabling more SMEs to use supply-chain management techniques. The development of mobile communications is uncertain because of the complexity of 3G networks, but businesses with a mobile workforce will find themselves benefiting by 2004.” (Business Link for London, 2002)
The United Kingdom is quickly becoming the dominant market place in the European Union for electronic business solutions and research. “The UK is by far the most mature on-line market in Europe, thanks to early privatisation of telecommunications ands the rapid growth in Cable companies”(Haverbuch, 2000).
By 2002 well over one million UK small and medium enterprises were digitally connected, putting them well ahead of their EU counterparts. Companies and research institutions in the UK are at the forefront of development in the convergence of information technology, telecommunications and content industries. This is of particular interest to McGregor BFA, as close proximity to leading developments in the content industry will greatly assist the company’s future technological advancement.
Business Link for London conducted a survey with 5000 businesses in London in 2002. This survey produced some very interesting results regarding the current adoption of primary e-business Information Communication Technology. Some of the most pertinent results are:
- “81 per cent of businesses have and use computers
- 70 per cent of businesses have and use internet access
- 17 per cent of businesses have a broadband Internet connection
- 65 per cent of businesses have and use external e-mail
- 51 per cent of businesses have a website” (Business Link for London, 2002)
Globalisation from a United Kingdom perspective.
“The term "globalisation" has acquired considerable emotive force. Some view it as a process that is beneficial—a key to future world economic development—and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress.” (International Monetary Fund, 2000).
Globalisation is a historical process, resulting from human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. London’s position as the major financial centre in Europe and the host to a multitude of international corporations defines it as a city and society that has, for the most part, embraced the benefits and ideals of globalisation.
Terrorism from a United Kingdom perspective.
Britain is used to the changing nature of the terrorist threat. For a number of years there was a heightened state of threat from Irish Republican terrorism. More recently, the threat from international terrorism has increased, notably since the September 11 attacks. As one of the world’s leading financial centres and a partner to the US in the War against Terror, London and the UK is constantly at risk
The threat now comes not only from established groups with clearly defined targets, but also from unaffiliated, loose-knit networks of individuals with a much broader agenda. At present the British Home Office has outlawed twenty-five international terrorist organisations under the . Terrorism both from within and internationally is constantly monitored by two government groups, The British Home Office and the Civil Contingencies Secretariat at the Cabinet Office.
Summary
Opportunities
London presents a host of opportunities to McGregor BFA. The city provides the business with a large potential client base, excellent business trading environment and political framework that provides access to a wider audience in the European Union. London forms an integral part of an economically stable environment and is host to a technologically advanced business community.
As part of the NASPERS Group, McGregor BFA has the opportunity to leverage off the presence of the MIH Legal division in London. This offers the company access to premises, telecommunication facilities, computer networks, legal services and payroll facilities that would ordinarily have been expensive start-up costs. Additionally, the offices are based in central London, so access to the core target market is enhanced.
Many investment firms in South Africa have Headquarters in London and they receive their research from these offices. The South African business has lost these clients locally, but the expansion presents the possibility of acquiring these clients back and having them pay for services in GBP.
Threats
There are some clear threats to this expansion plan.
The competitor vendors in London have access to vast resources and may have the ability to replicate some of our content offerings.
The South African Rand is fairly volatile so exchange rate fluctuations will have an effect on the costs associated with an expansion of this nature. A significant negative movement by the Rand will impact costs to a great deal and may, at a point in time, harm the viability of the venture. Of course, solid sales and a GBP annuity income will negate this.
Conclusion
London is a viable destination for International expansion of the McGregor BFA business. The opportunities are positive and attainable. There are threats, but these can be managed.
References
Best, R. J. (1997): Market-Based Management: strategies for Growing Customer Value and Profitability, New Jersey: Prentice Hall Inc.
Business Link for London (2003): “Fact sheet: Congestion Charging in London.” , 15 December 2003.
Business Link for London (2003): “Directors Briefing: Health and Safety.” , 15 December 2003
Business Link for London (2003): “Fact sheet: Employing overseas workers.” , 15 December 2003.
Business Link for London (2002): “Foresight Research – Future ICT and e-business trends and the Implications for SMEs and business support services in London.” , 14 December 2003.
Business Link for London (2002):”London E-Business Survey 2002.” , 14 December 2003.
Economist Intelligence Unit (2003): “Business Environment Rankings” , 03 January 2004
Haverbuch, R. (2000): “Benefits of the UK.” UK Trade and Investment, , 03 January 2004.
HM Treasury (2003): “UK membership of the single currency. An assessment of the five economic tests.” , 03 January 2004.
I-UK.COM (2003): “Politics and Government.” , 15December 2003
International Monetary Fund (2000): “Globalization: Threat or Opportunity?” , 15 December 2003
Labour Party, The (2001): “Labour’s 2001 general election manifesto.” , 15 December 2003.
Labour Party, The (2003): “Economic Stability.” , 03 January 2004.
Lamb, C.W., Hair, J.F., McDaniel, C., Boshoff, C., & Terblanche, N.S. (2000): Marketing, Cape Town: Oxford University Press Southern Africa.
London First Centre. (2003):”London: A world leader in Financial Services.” , 3 January 2004.
London Stock Exchange, The. (2003): “All Licenced Vendors.” , 14 December 2003.
Porter, M.E. (1998): Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press.
Rosen, R. (1995): Strategic Management: An Introduction, London: Pitman.
Swiontek, L. (2002): “Inside Market Data: Data Vendors Struggle in a Tough Year.” , 14 December 2003.
Figures
Figure 1: Economist Intelligence Unit (EIU) Business Environment Rankings (2003): (Source: ).
Figure 2 - Porter, M.E. (1998): Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press.
Figure 3: Foreign Direct Investment Confidence Index (Source: A.T. Kearney. (2002).”Annual Survey of 1000 companies' views of 60 countries.”),
