Factors influencing the entry mode choice of South African retailers expanding into Africa.

Abstract

ABSTRACT The research work here sets to identify key factors influencing the choice of entry mode of South African retailers entering new African markets and determine the order of importance of these factors. It also aims to establish the preferred mode of entry and the rationale underpinning the choice. This research follows a positivist paradigm and uses structured interviews to collect data from South Africa retailers that have entered African markets. All Johannesburg Securities Exchange (JSE) retail sub classifications are represented with 76% of the listed retail sector by market capitalisation and 70% of the total retail sector by sales, providing responses to the survey. The research questions posed are on the hierarchy of importance of the identified factors and the preferred entry mode of South African retailers entering African markets. The results of the research reveal that; government restrictions, country governance and political risk, the economic environment and market size, are the most important factors influencing the choice of entry mode. It also establishes that South African retailers prefer greenfield ventures with high control as the entry mode despite the perceived high-risk environment. The rationale supporting the preference in entry mode choice is found to lie in; 1) market failure arsing from the lack of depth and development of host country markets and hence the incentive to internalise by entrants due to their firm specific advantages, 2) that African markets present vast opportunities in the consumer market space and hence the high expected returns arising from the opportunities may surpass the perceived risks. The report concludes by proposing a top-down approach for South African retailers entering African markets entailing; understanding their risk appetite, identifying the risks in the foreign market, scoring and weighting the pervasiveness of each factor, evaluating their firm specific advantages and finally designing a company specific framework and strategy on entry mode into different African countries.