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The Concepts Of Risk And Uncertainty Economics Essay

Risks and doubt are notions that talk about targets in future. Risk on the other side is a possible factor, any business begins with risk and there is no business endeavor that does not involve a certain amount of risk in it. There are however many meanings of risks and even though each of the talks state various things, it is known that all acknowledge a point of future problems and mishaps that can be averted or reduced when undertake a certain activity. This quotations risk as a quantitative notion, i. e. noting risk as a measurable factor.

Conversely in many common manners of speaking, risk and uncertainty are known as being one and a similar thing. Doubt nonetheless is a phrase that connotes procedures or events that might occur in future and over which one has no control. It is usually known with an X-factor implicated to it because of its notion being immeasurable and non-quantifiable. Hence when an results of any business activity is not measurable or consequences are not alerted of, the concept is consequently known as uncertainty.

Nevertheless the report provided below will be an elaboration on the ideas of dangers and uncertainty that a fast food company, "MarryBrown" is likely to face when getting into a Southern African Market and about how these unknowns (risk and doubt) are maintained.

Below is a presented mind map on the procedure of risk and uncertainty, faced by an easy food firm getting into a South African market.

Difference between your concepts of Risk and Uncertainty

As initially mentioned previously, the ideas of risk and doubt under many circumstances are usually misunderstood to be the same. An enterprise risk can be an incident or one factor that states negative possible and probable negative impacts on the procedure or profitability of any given company. Noting the probable, it denotes that risk is a measurable factor. A factor that can be identified and options can be taken to avoid or reduce it. Doubt conversely denotes a circumstances when probabilities are too miniscule to be determined or measured hence quoting is as an unavoidable and non quantifiable concept.

Talking about different businesses using its different opportunities, risk and uncertainty can however be converted into positive influences as opportunistic levels. Research and programs with data involved from existing marketplaces and/or products can lessen the level of risk and could give a business a chance with objective judgments. Likewise, when doubt are assumed as hazards, subjective judgment are likely to be taken and enterprisers should be owned or operated with skills of forging new guidelines and relating into new marketplaces and/or products.

Foreign Market Analysis on Fast Food

Likewise as mentioned initially, any firm getting into any market is to be confronted with different degrees of risk and doubt and so could be the case for a fast food firm, "Marrybrown" going into a South African fast food market. A simple view is directed at the fast food market in South Africa that could help spotting out the levels of possible dangers and assumed uncertainties.

It is observed that the fast food industry in being challenged by rising food prices, a hardcore competitive environment and dropping disposable incomes. In that way firms with the best advancement in the name of brand devotion game are the only 1 to make it through through the marketplace.

The South African consumer foodservice considers a strong value growth in '09 2009 despite the poor economic local climate with consumers experiencing lower throw-away income levels. Individuals are more likely to spend less on luxuries such as eating out. Because of this the consumer foodservice has altered down its expansion in comparison to the previous calendar year (2009), where the consumer food service viewed a solid value growth.

Leading brands in the junk food industry nevertheless fought for consumer loyalty during the economic downturn but the Southern African consumer foodservice got accomplished its strong value expansion in '09 2009. On the other hand, leading brands in the fast food industry came up with the advantages of smaller treat sized menu portions in order to make it through the financial downturn in the Southern African, hence minimizing device prices and encouraging consumer spending. The brands also increased the amount of their menu items with types (creativity) to slot in more eating events therefore motivating consumers to continue to buy food between meals times.

The leading positions in the consumer foodservice market with international and local brands are also to be looked at within the fast food industry. Together with the domination of local players with full-service restaurants, 100% home delivery/takeaway services, restaurants and small block stalls, a huge share of junk food ensures a strong international lifetime in the general consumer foodservice market. However with the basic consideration noted on challengers, the junk food industry in South Africa is led by the international brand KFC, with Steers being ranked as the second local brand. Hence it declares that with the reputation and strength of the junk food industry in South Africa, it's the international junk food brands which may have made a large impact on the buyer foodservice market as a whole.

Nevertheless, there is a steady development forecast for South African consumer food service market regardless of the economic stresses and the effects of the National Credit Act modifying down the growth of franchises in South Africa. The overall value expansion is however forecasted to stay intact during the period of economy recovery though it will be lower than it has been through the review period as product prices will probably change in stabilization.

With a synopsis of the consumer food service market in South Africa, the risk analysis and uncertainty levels likely to be faced by "MarryBrown" are thereafter considered of. Below employs the few types of risk probably to be experienced.

Types of Risks likely to be Faced

There is however different kinds of risk that faces a company in international business based on the country's macro monetary health, political affect as well the market/industry size itself. Here are the types of risks that MarryBrown is most possible to face in the South African consumer food service market.

Political Risk:

With quick elaboration, political risk is the chance that political events, decisions and condition will effect commercial investment funds.

The World Lender ranks the overall economy of South Africa as the top middle income overall economy so that it is one of the one four (4) countries (Botswana, Gabon and Mauritius) in Africa representing the category. Hence this implies that South Africa retains a strong plan that might affect the MarryBrown as a fresh entrant.

Systematic Risk: That is apt to be faced due to the changes in policy that would have an effect on all companies. However, having an overview over the South African market, it is known that South Africa retains a strong policy in regards to those affecting different firms. Matching to a Southern African review-based research, you can find usually not much repeated changes in the regulations affecting the junk food firms (small companies) in South Africa hence the systemic political risk is ranked to be low. However based on the Gauteng Provincial Authorities in South Africa, a policy framework work is developed for the Small, Medium and Micro companies (SMME), i. e. MarryBrown being a little fast food enterprise, must follow the developed strategies and being a new firm on the market.

The Small medium organization (Junk food Company) in South Africa at first depends upon the self financing by entrepreneurs due to its boosting economy. The tiny medium corporations would in so doing move on to debt financing as they create business data and expand procedures. The different sorts of financing requirements can lead to systemic risks to be experienced by MarryBrown with a proportion of low skill to high capital necessity.

Procedural Risk: Politics interventions running a business techniques are however a common problem in almost all business methods. The follow up in the procedure for checking a firm is however an extended process in South Africa, with acquiring the rights and obligations for the company. For the fast food industry, it is however challenging in conditions of administration and social organizations raising issues over health and hygiene and conformity with dietary labeling laws of the country as well as union and trade group over labor relationships and regulations.

Distributive Risk: With no tax revenue, the government is usually bounded to do its job. Any state's bulk income relays on the tax, hence the "MarryBrown" is likely to face distributive risk in conditions of the appropriation of profits earned. The state of hawaii requires duty rands to fund programs, both public and economic and to provide general public goods and services. This hence changes to be one of the type of political risks likely to be faced by a fast food firm in the South African Market (and/or some other firm in virtually any other market). Also noting the distributive risk on the appropriation of revenue with different promotion tools including adverting, price promotions and some other method of attaining customer focus on influence consumers purchase.

Catastrophic Risk: Revolutionary changes in the federal government are however noted to be always a political risk experienced by any organization in any overseas market. Nevertheless, with the maximizing South African market, catastrophic risk is however seen to be low for an easy food industry.

Hence these are the politics risks that are likely to be faced by MarryBrown as a fast food industry in South Africa.

Conversely, politics risk is only one type of risk expected to be experienced by nearly every firm, there are other observed dangers as elaborated below:

Economic Risk:

The economy of South Africa being robust will probably let MarryBrown face not many economic hazards in its development as a successful business. Nonetheless, until after the global economic problems struck South Africa in overdue 2008, economic expansion had been steady and unequaled. Since from the first 1 / 4 of 1993 to the second quarter of 2008, the united states got a well continuous and an uninterrupted economic progress, but as the crisis struck the market, it was noticed to tough economy. The Expansion of Household Credit constricted in the 3rd and fourth one fourth of 2008 officially shedding the market to recession. The constriction continued into the first and second quarters of 2009, with the GDP development at -6. 4% and -3% respectively.

Nevertheless South Africa's overall economy has now been totally refurbished since the advancement of democracy in 1994. Intrepid macroeconomic reforms have enhanced competitiveness, economic growth, increased occupation factors and beginning South Africa to world markets. This estimates MarryBrown to handle more of Market/Professional risks in conditions of strong conclusion and rivalry. Economic risk is however low for MarryBrown in South Africa.

With an even better view on the South African overall economy, the International Monetary Fund (IMF), in the 2007 provided report on gross annual country analysis, quoted South Africa's economy as "undergoing its longest development on record, and in recent years has experienced increased growth in an environment of swift credit expansion, booming asset prices, conditioning public finances, and growing international reserves financed by large capital inflows. "

The Inflation rate in South Africa was last reported at 4. 1% in March 2011. Inflation rate however refers to a universal rise in prices determined against a typical degree of purchasing power. The most common and well known procedures of inflation include the Growth of domestic product (GDP) as mentioned above and Consumer Price Index (CPI).

With consideration placed on the buyer Price Index (CPI) in South Africa the graph below presents the CPI/ GDP Inflation rate in South Africa:

Hence with these analysis of the macroeconomic health of South Africa, it can be explained that MarryBrown as an easy food firm will not face much of the financial risk because of the well stabled current economic climate of South Africa.

The largest ratio talk about (47%) of the whole income in the meals and beverage industry was as a result of Restaurants and Espresso shops and JUNK FOOD outlets with 29% of contribution and Caterers and other Wedding caterers services adding the other 25% in the industry. With research it is noted that with around 181, 373 people used in food and beverage industry in South Africa, Restaurants and Espresso shops owned or operated the largest part of 51% while the Caterers and other Wedding caterers services owned 30% of the entire junk food industry. Therefore with the presented research it is known that the junk food industry indicates a relatively higher level of attention and loan consolidation in South Africa.

Industrial/Market Risk:

In South Africa, the junk food firms are utilizing a mixture of different strategies to be able to get competitive advantages. These strategies range between global and home franchises, staff empowerment, co-branding to placing communication and information solutions (ICT) as competitive tools and then for lowering information asymmetrical problems. The FASA; i. e. the Franchising Connection of South Africa is the mother body of franchises in the united states that administers competition and wellbeing matter for small medium businesses in the Fast food industry. It can hence be known that the junk food industry in South Africa is an emerging industry. Joint Investment funds are created between gas stations and fast food firms in order so they can work under one roof and increase consumer awareness of their food services in so doing increasing sales.

With the aforementioned presented short review on the fast food industry in South Africa, it can be stated that MarryBrown is likely to face major commercial risks within the marketplace, main credited cause being rough competition and rivalry.

The examination of Michael Porter's five competitive causes however assists with examining the commercial risk with an improved overview.

Above is a display of Michael Portal's five competitive makes in a pictured form. MarryBrown will however face these competitive risks in the market, being the Threat of New Entrants, Bargaining Electric power of Purchasers, Bargaining ability of Suppliers, Threat of Replacement Product or Services and Rivalry among the prevailing competitors.

Analyzing each one of these hazards, below is a short elaboration on the 5 pushes to be encountered by MarryBrown - Fast Food organization in South Africa.

Threat of New Entrants: MarryBrown will probably face a menace as a new entrant in the junk food market as there will be a comparatively high need of preliminary capital outlay. It will also need to handle the loan consolidation of the growing industry as well as maintaining the economies of scale may also be an effort that MarryBrown is to face. With all the current listed hazards as confronted by new entrants, MarryBrown will also have to understand the logistics of the learning curve in the JUNK FOOD Industry in South Africa.

Bargaining Electricity of Customers: Facing a fragmented customer basic review on the assistance offered as well as having a relatively low average purchase denotes the bargaining ability of Customers to be high. This would also include the rising portion of discriminating customers with the buyer council of South Africa.

Bargaining Ability of Suppliers: That is noted to high as well with the regional franchises exhibiting the market power. The amounts of alternative suppliers are relatively high in the fast food industry in South Africa and there are also other low providers with the brand commitment. Switching costs in the industry are also noted to be low, such as syndication channels.

Threat of Substitutes: The threat of Substitutes is relatively in the junk food industry with high product differentiation such as different food solutions. There are also many other 3rd party caterers being local industry players as well as few other Global industry players such as KFC, McDonalds, etc. The switching costs for customers can also be low hence threat of shedding customers.

Rivalry among existing organizations: Industry rivalry is however explained high as well in South Africa with high concentration ratio of around 36%. Competitiveness would also be match when it comes to low pricing electric power, market consolidation as well as low margins.

Hence the aforementioned is a short analysis of the marketplace risk likely to be confronted by MarryBrown in the South African Market.

Levels of Uncertainty

Nevertheless, the complete presented document is an examination of both hazards and uncertainties faced by a firm in a particular market. The risks apt to be experienced are however elaborated above, but additionally to that there are also few other degrees of uncertainties likely to be noted. Here are the degrees of uncertainties to be studied into consideration.

Uncertainty as at first identified is a circumstance of future occurrence that is unpredictable and immeasurable. The circumstances that connotes methods or events that may occur in future usually known with an X-factor implicated to it anticipated notion being immeasurable and non-quantifiable. Nevertheless, there are four levels of Uncertainties these include:

Level 1: Uncertainties known from days gone by predictive and pattern evaluation, e. g. predicting the demand for burgers and vegetable wraps tomorrow. This may denote that if the demand for burger drops, so will the success of MarryBrown

Level 2: Uncertainties known from discrete (binary) futures. These would include uncertainties like the changes in procedures that may have an impact on fast food industry in relation to health advantages.

Level 3: Uncertainties with multiple futures are also to be observed. These would include predicting the fall of the fast food industry with negative economic changes.

Level 4: This consists of true ambiguity, such as predicting change of consumer centered view, with shedding image for junk food.

Hence that above are the types of uncertainties apt to be experienced by MarryBrown in the Southern African market.


With the above mentioned presentation of the research of the risks and uncertainties experienced by a fast food organization in the South African market, I have concluded the distinction between the two principles with probable alternatives.

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