Permanent resident scheme 13
SWOT Analysis 14
- Strengths 14
- Weaknesses 15
- Opportunities 15
- Threats 16
Conclusion 17
Reference 18
1.Introduction
Cisco Systems – Company Background
Cisco Systems South Africa (pty ) Ltd is a wholly owned subsidiary of Cisco Inc which is a US incorporated company. The both companies share the same strategic goals and business vision.
Cisco Systems is the leader in networking for the internet. Today, networks are the essential part of business, education, government and home communication and Cisco Internet Protocol-based (IP) networking solutions are the foundation of these networks. Cisco hardware, software and service offerings are used to create internet solutions that allow individuals, companies, and countries to increase their productivity, improve customer satisfaction and strengthen competitive advantage. The Cisco name has become synonymous with the internet business solutions provided. The Cisco vision is to change the way people work, live, play and learn.
Cisco was founded in 1984 by a small group of computer scientists from Stanford University. Since the companies’ inception, Cisco engineers have been leaders in the development of IP based networking technologies. The IP innovation continues with industry-leading products in the core areas of routing and switching, as well as advanced technologies in areas such as: home networking, optical, storage networking, IP telephony, networking security and wireless LAN.
Today, with more than 34000 employees worldwide, Cisco remains committed to delivering differentiated value to customers and partners through its unique product and service offerings, while closely mapping products and services to its customers needs and priorities such as productivity, cost savings, return on investment, and standard of living improvements.
Cisco Systems South Africa
The headquarters for Sub Sahara Africa is run out of the Cisco South Africa entity. The entity supports all the operations in the region by either establishing offices there or managing them remotely from South Africa. Offices have been set up in Nigeria, Kenya, Senegal, Zimbabwe, Cameroon and now a study is being done into the feasibility of Mauritius as a potential location. Currently there are 73 employees in South Africa and are spread across three locations being, Johannesburg, Pretoria and Cape Town.
Sales in the entire region are approximately US$ 110 million of which 80% is from the local South African market. Cisco owns about 75% of the local switching and routing market which is the infrastructure that the internet to runs on but this is not the only market they operate in. Related markets like software, security and telecommunications has much more competition but Cisco still has a fair percentage of each market.
The company focuses on all business as potential customers and has even entered the home or domestic market with cheaper equipment. The home products range is the same as that of the corporate range, with just a smaller capacity. There products include routers, switches, wireless access points and Internet Protocol phones.
The business market is split up into small and medium business (SMB), financial services, large enterprises, service provider and government. By the company aligning its business in this way it helps it to get better focus and skills to the correct market and thereby giving the customer the best possible support. Our biggest customer in South Africa is Telkom SA which use Cisco equipment in their own networks but also deploys many of the products into their customer sites. Cisco has been awarded many tenders in the recent past and these include the rollout of the Sentech wireless internet access which has been rolled out in the major cities in South Africa. Cisco has also installed wireless hot spots at the Johannesburg international Airport.
All products that are brought into the country certified by the Independent Communications Authority of South Africa (ICASA) and are therefore fully licencesed for use locally.
- The Information and Communications Technology Industry (ICT)
As reported on the BBC news on 06 December 2002, 600 million people globally have some sort of access to the internet. This however leaves the majority of the world population with little or no access to this technology. The large portion of these people come from developing nations. We now have a situation which is termed the digital divide which results from technology being inaccessible to some parts of the population while others have the entire infrastructure and technology as needed. The costs of technology is declining as new products are developed continuously and also based on the number of competitors there are in this industry.
Even though there has been issues of the digital divide as we have in South Africa, conscious efforts by government and business to address the issue helps get resource out to those that do not have means of acquiring and using the technology. The Mauritian government has also realized this and has embarked on initiatives to get the people aware of the technology and also to start using it. The benefits of technology are many and are continuously growing. Productivity is one of the greatest wins of technology as in most case people are able to do more by incorporating technology into their business or personal life. Technology helps increase efficiency, reliability, knowledge, convenience and customer satisfaction in most cases.
In the developing world it has also helped countries and economies to get competitive with the rest of the world without having the need to spend a long time investing in infrastructure. Examples of this would be the situation getting mobile phone access as apposed to the delays associated in setting up land line infrastructure. Wireless internet access is also valuable in the absence of proper cabled networks.
The Mauritian government is trying to move their economy to an information economy by introducing the Technology sector as one of the pillars that they will grow the economy on. Cybercities have been built around the country to help facilitate wealth and job opportunities for the younger people. An incubator concept has also been adopted where government will give support to startups with good business ideas. Facilities will be supplied to allow these businesses to take off.
Country background
Since, independence in 1968, Mauritius has always had a democratically elected government and has not had any political instability. Although population is made of people from different nationalities and religious backgrounds, they live in harmony and peace with each other. The official language is English which all citizens speak but the real language of the people is Creole which everyone speaks and understands. According to the central statistic office in Mauritius there are approximately 1,147,700 citizens and 85% of the adult population is literate.
According to the Mauritian Board of Investment (BOI), Mauritius has a strong economy and has moved from monoculture economy based on sugar cane to a diversified economy resting on four main pillars, ie agriculture, export processing industries, tourism and financial services. The information technology and communications technology (ICT) sector is now being developed as the fifth pillar.
Mauritius has a per capita income of $4484 (2003) and has experienced an average growth of 5.7% in GDP, over the last five years. Major contributions to GDP come from agriculture (6.4%), Manufacture including export zone (21.7%), tourism (6%) and the financial sector which contributes 14% .
E Commerce
The Mauritian government realizes the importance of the information technology sector and would like to make it the fifth pillar on which the economy will be built. This is an encouraging sign for Cisco as our technology and business is to grow the internet and by having government promote this and lead the way forward, is favourable. E commerce allows the flow of transactions over the internet and makes business convenient, efficient and cheaper. E Commerce allows business and individuals to transact locally and across borders and at any time of the day or night. Exports are big contributor to the Mauritian economy and E Commerce will make it easier and more profitable for customers abroad to transact with local companies at their convenience.
Cisco is in the business of setting up networks and IT infrastructure which is the platform for E Commerce to be able to take place, thus would be in an extremely beneficial position as business in Mauritius starts to embrace the E commerce concepts.
Growth
There is a definitive strategy towards growing the economy and country as a whole. The ministry of economic development and corporate affairs, has done a national long term perspective study which is called the Vision 2020. The reports sets out plans to grow by focusing on quality and doing things well. Tourism is still a strong growing industry and focus will continue to stay with this industry. There is a drive to be the region’s leader in the banking sector and to have the computer and linguistic skills to be accessible from anywhere in the world.
Resource and Environment
ICT Sector
Information and communications technology is the focus as the new sector on which the economy will be built. Government is partnering with business on this project to make technology accessible to the people. According to the ministry of economics, there is a plan to transform Mauritius into a cyber island.
The Business Park of Mauritius, Ltd. was set up by the government to spearhead the development, construction, and management of major business and IT parks in Mauritius. It has secured $100 Million from the Indian government for the creation of the first cyber city at Ebene, according to (2004).
The cyber city concept has been attractive to companies in this sector and they have set up operations in these locations. The de regulation of the telecoms industry and the optic fibre cable that has been laid according to the Southern Africa Far East (SAFE) operation, has given the ICT sector the impetus that it needed.
Labour Force
The Labour Act of 1975 protects the workers rights in terms of remuneration, leave days, salary increases and terminations.
Mauritius has a high percentage of skilled labour but it does face long term challenges as the population growth rate is slow which will result in the not being enough people available for work in the future. Every year about 10 000 new job seekers enter the market, most of whom have secondary education and technical skills. Mauritius has harmonious labour relations and only 25% of the workforce is unionised
Globalization
The worlds’ economy is continually evolving as time and distance is becoming less relevant as to when and where they do business. A truly global economy is twenty four hour market place in which the rapid flow of information is the very life blood of any successful enterprise.
Government promotes companies to move towards computerization in order that time is free’d up and companies can concentrate on product development.
Trade and Finance
The ratio of trade to the GDP is approximately 90%. Over the last few years the Mauritius trade has been increasing to the USA but it still maintains a large portion, about 70%, of exports to the European Union. Mauritius is part of the Common market for Southern and Eastern Africa (COMESA) and the Southern African Development community (SADC) trade groupings, both of which try to create free trade zones.
The Mauritian free ports acts as distribution centre between Africa and Asia, with the main products being fish and textiles. The benefits of the freeports has resulted in many firms outsourcing their logistical requirements to these ports.
South Africa is currently the largest source of imports to Mauritius.
1 Fiscal policy
Fiscal deficit has widened in recent years from 3.8% of GDP in 1999 to 6.5% of GDP in 2001. This resulted from large losses experienced by the State Trading Corporation (state owned oil imports company) due to the fact that domestic petrol prices were cut at a time when the international oil prices were soaring. This petrol price cuts were reduced but had to be subsidized by other methods and in this case namely the reduction is tariffs. This does have the resulting effect of reducing revenues though, so government has taken the option of improving its tax collection system as well as reviewing the rate of Vat.
2 Monetry Policy
Mauritius does not have any foreign exchange controls and the Mauritius rupee is fully convertible. The Bank of Mauritius (BOM) is central bank responsible for achieving stability in inflation and the exchange rate.
3 Taxation
- Corporate Taxes
Domestic companies are taxed on worldwide income while foreign companies are taxed on domestic earnings only. The standard tax rate is 25%. A reduced tax rate of 15% applies to the following companies;
- Tax incentive companies holding EPZ, industrial expansion, hotel management, or industrial building certificates.
- Network service providers, internet service provides and other IT companies
- Clinics
- Unit trust and other approved investment trust companies listed on the stock exchange of Mauritius.
- Personal Income tax
A flat rate of 15% applies to earning less that 25000 MRs, while amounts greater that 25000 MRs is subject to 25% tax.
- Value Added Tax (VAT)
Vat of 15% is levied on most good and services and companies with annual revenue greater than 3 million MRs must register for VAT.
- National Pension Fund (NPF)
Statutory contributions of 3% of salary are made by the employee and a contribution of 6% is made by the employer to the NPF.
- Other Taxes
Other taxes include registration and stamp duties and gift tax.. Capital gains tax is only applicable to some transactions involving the transfer of land. Dividends is not subject to with holding taxes.
F) Double tax Agreements
Mauritius has tax treaties with 33 countries.
4. Investment Attrations
Mauritius has various schemes available to try and attract foreign investment by offering tax exemptions and other benefits. The board of investments (BOI) facilitates this investments process for potential investors.
- Export Processing Zone
Firms that manufacture goods for export can apply to be part of the EPZ and once certified would be entitled to the following benefits.
- reduced corporate tax rate of 15%
- duty and VAT free importation of materials and equipment
- reduced registration fee on industrial land and buildings purchased.
- Global Businesses
The Financial services Commission (FSC) licenses and supervises all global (offshore) non banking activities which include information and communications technology. Benefits are:
- reduced corporate tax rate of 15%
- duty and Vat free importation of equipment
- concessionary personal income tax rate for expatriate personal
- duty free importation of cars and household goods for two expatriate staff per company.
- Free Port
The free port facilities offer 70 000 square meters of warehousing, cold storage, processing centres, office buildings and exhibition space at Port Louis port and around the airport. The incentives offered are as follows:
- exemption from corporate taxes
- duty and Vat free importation of goods
- preferential warehousing and port handling fees
- access to offshore banking facilities
- Regional headquarters scheme (RHQ)
This scheme encourages companies to use Mauritius as an entry point into Africa by establishing the headquarters in Mauritius. There is a minimum investment of US $ 400 000 that is needed and the following incentives will apply:
- 10 year tax holiday on income derived outside of Mauritius with a reduce tax rate of 15% thereafter
- Duty free importation of furniture, equipment and two cars per company.
- Concessionary personal income tax rate for four years for two expatriate personnel.
- Permanent resident scheme
Individuals investing at least US$ 500 000 in manufacturing, hotels, tourism, financial services, the free port or information technology, may obtain Mauritian residency and ultimately citizenship.
War on Terrorism
The world economy has been affected by terrorism and the Mauritian economy is no exception. As globalization spreads and business is not restricted by boundaries or time, business also get exposed to the negatives of terrorism even though it occurs in different countries. Mauritius economy is still largely based on tourism and this industry has suffered in the past few years since the September 11 attacks in the USA. Once one area of the economy suffers it generally filters through to other sectors that are dependant on it for business.
SWOT Analysis
- Strengths
- The Mauritian labour force is highly educated and is offered training by the government and also the opportunity to start up their businesses. Government provides, funding, facilities and training in order to promote entrepreneurship amongst the younger generation.
- Mauritius is part of a number of regional trade agreements which make the contact with the outside world much easier and also in many cases cheaper.
- Mauritius experiences a high level of political stability and there is social harmony amongst its people. The government is democratically elected and a new election is held every five years.
- The country is geographically well positioned for trade with Africa, Europe and Asia
B) Weaknesses
- Although Mauritius has a very high percentage of literate population, it does face the challenge of increasing unemployment year on year for the past five years.
- Economic performance has been led in the past three decades by export led growth which comprises of two main exports, ie sugar and textiles. Mauritius has had export preferences in these areas but when these expire they will have low cost competitors to face.
- ICT sector still does not have all the infrastructure that it needs.
- Opportunities
- The ICT sector has been earmarked as a pillar on which the economy will
be built thus creating scope for development and business opportunity. Government is driving and funding most of the initiatives thus removing the capital burdens experienced by most companies
- The Mauritian Board of investments has made significant progress in trying to get foreign investment in Mauritius. There are many different schemes that are offered to foreign investors and these schemes differ based on the industry or type of organization that a foreign company would like to establish. These incentives include tax and duty concessions as well as allowances
- Threats
- The population growth rate is low meaning that for the long term Mauritius could end up in a reverse situation of there not being enough people available to work.
- Fiscal debt has been increasing over the last few years and 2001 it reached 6.5% of GDP but this has been due specific events, eg petrol pries and destruction of sugar products
- Devaluation of the Euro has impact on Mauritius as a large portion of its exports go to the euro zone.
Conclusion
Mauritius is has the profile of country that is feasible for investment and has the incentives necessary to provide Cisco Systems South Africa with a real opportunity for growth and further their plans for an African expansion. Mauritius has the stable economic and political platform that will allow Cisco SA to easily fit in and take hold of the opportunity for potential growth that exists in the country.
Investment incentives that are offered by the Mauritian board of investments is very attractive to enter a country that has such real opportunities anyway. Cisco has the option to reduce it tax payments, duties and also should it use Mauritius as a entity to expand it into other countries it could well have its foreign revenues tax free. These benefits of setting up in Mauritius will help Cisco to remain competitive in spite of any challenges it may face as a result of expanding operations.
The vision 2020 that Mauritius has is one of growth is all sectors of the economy and a sign of a country that wants to continuously improve itself for the benefit of its people. Tourism will always be one of the main pillars of the economy and given its location, landscape and unending beauty people will be drawn to this location.
The ICT is being given all the support that it needs to be the future growth mechanism for the people, economy and government of Mauritius. This is is Cisco’s playing field and therefore and drive in the sector will continue to create opportunity for the company. Based on the fact the ICT sector is receiving the investment at this present time and in consideration of the social, political and economic strengths of the country, Cisco is now presented a golden opportunity to make sound investment.
References
Reference from books
Surjit, B. (2003): Imagine there’s no country: Poverty, Inequality and Growth in the Era of Globalization,
References from Internet
Muhbodh, S. (2003): “Launching of the Incubation Centre.” , 18 June 2004
Thompson, B. (2002): “Why the Poor Need Technology.” , 15 June 2004