The impact of institutional factors in African emerging markets on the success of multinational enterprise strategy

Abstract

Multinational enterprises operating in the leading African emerging markets are subject to the same global demands as businesses operating in any other part of the world. These demands range from growing profitability and revenue, market growth, product innovation, and entering new markets. Repeatedly, authors on strategy have highlighted that the external environment in which a firm operates, as well as how it adapts its strategy to that environment is fundamental to its success in that market. Although the extent of the impact of global demands may differ in different local contexts, the global village of business is now largely one interdependent system. Based on the categorisation of the Global Competitiveness Report, the dynamics of the external environment are affected by institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation. Each of these pillars, play an integral role in the success of the overall country economy and in turn the success of the multinational enterprise. Past research highlights that the institutional pillar has significant effects on doing business in Africa and consists of seven key components: property rights, ethics and corruption, undue influence, government efficiency, security, corporate ethics and accountability. The primary objective of this research was to identify the key institutional factors, which may influence the strategy of the multinational enterprise from developed economies, and to determine the extent of the impact of these factors on its performance. With reference to both current and past research on multinationals from the developed nations, like the US, UK, Germany and France, which operate in the emerging markets, a knowledge gap is prevalent in terms of how these firms operate in the leading emerging markets of Africa. To contextualise the study, four leading emerging markets in Africa were selected; these were South Africa, Nigeria, Kenya and Egypt. By using socio-economic indicator reports from global institutions like the World Bank and the World Economic Forum, the uniqueness of the dynamics of these African economies in comparison to not only the developed nations but also to other leading emerging economies like Brazil, Russia, India and China was drawn. This combination of country assessments, and literature review on both economic and organisation trade theories, laid the foundation to justify and operationalise the research process by formulating five key hypotheses. iii In order to analyse the hypothesised relationships it was necessary to define the components used by multinational enterprises, which measure the success of a strategy. To achieve this, the Triple Bottom Line Reporting framework was used and incorporated measures relating to turnover and profit, corporate social investment and environmental friendliness. The research design relied upon explanatory, descriptive and exploratory techniques in order to work towards the desired study objectives. The initial research thrust was exploratory to provide the setting or social phenomena of strategy in the leading African emerging markets. This exploratory work, which was performed predominantly through the literature review provided the background information needed to plan the explanatory part of the research. The descriptive component of the research included analysis of the biographical data and its relation to the hypotheses. The last part of the research was explanatory as it involved the analysis of the relationships and associations that exist between the dependant and independent variables. For the inferential statistical analysis, both Spearman’s rank order correlation and Binary logistic regression were used. From the results of the statistical analysis, it was deduced that of the five independent variables, the two that had the most significant association and relationship with the success strategy of the multinational enterprise were ‘undue influence’ and ‘security’. These findings suggest that undue influence relates to the fact that an independent and transparent judiciary system is key to the success of the multinational enterprise strategy in the emerging market. The component which ranked second in terms of importance was security, which implies that there has to be a reliable and efficient law enforcement agency, such as the police, to instil investor confidence by multinationals operating in African emerging markets. The results showed that undue influence and security work are interdependent and both affect the dependant variable. Based on the findings, recommendations were made by providing a new conceptual framework that has both theoretical and commercial implications, which in turn fills the knowledge gap on multinationals from developed nation’s operating in the leading African emerging markets. The research has made a contribution to the strategy discourse in an emerging market context by highlighting the unique traits of the African emerging markets in comparison to the developed nations. The implications of the thesis translate into multinational enterprises from developed nations, recognising that the success of their strategy will depend on the consideration and understanding of different institutional structures in emerging African economies.