CRITICAL SUCCESS FACTORS FOR SOUTH AFRICAN FOREIGN DIRECT INVESTMENT IN SUB-SAHARAN AFRICA
Date
2011-06-10
Authors
Saunderson, Murray
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
South African corporations, post the first democratic elections in 1994, had excess capital which had been accumulated during the Apartheid years. In a global context, these companies were relatively weak, but in Africa they found a region in which they enjoyed comparative advantage. Almost every sector of the South African economy is currently represented in other African countries (Daniel et al. 2003).
The purpose of this study was to explore the factors which South African corporations consider to be critical for successful Foreign Direct Investment (FDI) in Sub-Saharan Africa (SSA). In the process other less critical, but important factors were highlighted.
In depth interviews were conducted with six executives who had extensive experience in the field of FDI in SSA. Each of these interviews can be regarded as a mini case study. The respondents were sourced from companies in six industries, namely Beverages, Packaging, Financial Services, Construction, Tourism and Telecommunications.
The methodological paradigm of this research was primarily qualitative, as the research was of an exploratory nature. The rationale for adopting this approach was that the nature of the research was to explore and understand the factors which South African corporations considered to be critical for successful FDI, rather than to confirm pre-determined factors. In this way, attention was focussed on the experiences and perceptions of participants. The methodology was grounded in the assumption that people make sense of their experiences and create their own realities in the process (Locke et al.1993).
The Critical Success Factor (CSF) interview technique was used to extract factors considered to be critical for successful FDI. The executives focussed on listing those factors considered to be most important for the attainment of FDI goals.
iii
The research into these CSFs was structured into three main categories, namely: Selection Criteria, Establishment and On-Going Management.
The CSFs identified for each on these categories are listed below:
Selection Criteria for FDI
Ease of communication; Availability of skilled labour and raw materials; Prior country experience; Political stability; Employee safety; Regulatory certainty; Sensitivity to local cultures, customs and practises; Adequacy of infrastructure; Size of the local market and potential for future growth; Presence of an existing customer in the market; Timing of entry into the market; Market segmentation and research; Degree of product customisation; Brand awareness; Climatic conditions; Risk / Return trade off; Financing structure; Working Capital investment and Pricing structure.
Establishment of FDI
Greenfield versus Merger / Acquisition; Ownership structure; Local equity partner selection; South African Reserve Bank approval; Location of the operation; Local partner assistance and mix of staff – local versus expatriate.
On-Going Management of FDI
Regular risk reviews; Insurance; Back-up systems; Financial Controls; Support from the South African parent company; Mix of local and expatriate employees; Positive attitude; Communication of key performance indicators and provision of incentives.
The research concluded with recommended actions in the form of a checklist for successful FDI (refer to section 6.2). Therefore, this report can be used both in the context of future research, and as a practical guide to ensure the success of FDI in SSA by South African companies
Description
MBA - WBS
Keywords
Foreign direct investment, Sub-Saharan Africa