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THE RAINBOW NATION, GOING BEYOND THE HORIZON – GLOBALIZATION OF SOUTH AFRICA ??? ABSTRACT This paper examines the advantage, disadvantage, trade and FDI in SA from globalization perspective. South Africa(SA) is the one of the post BRICs country and it has largest economy market in Africa. Following the democratic elections of 1994, SA corporations moved with alacrity into the rest of Africa and beyond. Mining houses led the way, followed by manufacturers and financial institutions. Multinational companies also have branched in SA because it is a beachhead for the Africa and takes 70% of African trade.
The Government also supports the infrastructure and gives a tax benefit for better business environment. On top of that, now SA is facing a huge opportunity, the 2010 FIFA world cup. Consequently, SA will be getting globalization and continuous efforts are needed at the country in order to attract significant investment flows and improve the prospects for sustained growth and development. i TABLE OF CONTENTS Abstract………………………………………………………………………………….. i Part ? : Understanding Africa and South Africa 1. Africa………………………………………………………………………………….. 1 2. Republic of South Africa……………………………………………………………. Part ? : Current analysis 1. Trade ……………………………………………………………………………….. 5 2. Foreign Direct Investment…………………………………………………………8 3. Disadvantages………………………………………………………………………. 11 4. Advantages………………………………………………………………………….. 11 5. Industries in South Africa ??? 5 key sectors………………………………………13 6. Doing business ??? Global corporations in SA……………………………………15 7. Globalization……………………………………………………………….. ………. 4 8. 2010 FIFA world cup………………………………………………………………. Part ? : Case studies 1. Best Practice……………………………………………………………………… 17 2. Worst Practice……………………………………………………………………….. 18 Part ? Conclusion……………………………………………………………………….. Appendix I ??? List of global automobile Industries in SA…………………………………… 1 Appendix II ??? Global mining companies in SA……………………………………………… 1 Appendix III ??? List of Global IT companies in SA…………………………………………… 1 Appendix IV for the full list of the multinational company………………………………… 1 REFERENCE………………………………………………………………………………………… 1 ii PART 1 : UNDERSTANDING AFRICA AND SOUTH AFRICA 1. AFRICA Africa is the world’s second-largest and second most populous continent, after Asia. At about 30. 2 largest most-populous million km? ncluding adjacent islands, it covers 6% of the Earth’s total surface area and 20. 4% of the total land area. It accounts for about 14. 8% of the World’s human population with a billion people (as World’s of 2009) in 61 territories. The continent is surrounded by the Mediterranean Sea to the north, both the Suez Canal and the Red Sea along the Sinai Peninsula to the northeast, the Indian Ocean to the southeast, and the Atlantic Ocean to the west. There are 53 countries, including Madagascar and st, various island groups and excluding the disputed territories of Western Sahara.
Although Africa contains abundant natural resources, it remains the world’s poorest an most and underdeveloped continent, due to a variety of causes that may include the spread of deadly diseases and viruses (notably HIV/AIDS and malaria), corrupt governments that have often committed serious human rights violations, failed central planning, high levels of illiteracy, lack of access to foreign high capital, and frequent tribal and military conflict (ranging from guerrilla warfare to genocide).
According to the United Nations’ Human Development Report in 2003, the bottom 25 ranked nations (151st to 175th) were all African. 75th) Within the Africa continent the distribution of wealth is so uneven. The top 5 in GDP countries mark 62% of the entire GDP, and top 10 in population take 62. 5% of GDP (Figure 1). FIGURE 1 DISTRIBUTION OF AFRICA ECONOMY Africa is now getting attention from the World as one of Post BRICs markets, which contains a lot of Post-BRICs undeveloped natural resources with sky rocketing demand on construction, plants and IT.
Now Africa sky-rocketing nations are occupying one third of the United Nations’ seats, some developed countries are eager to build strong relationship with them to take advantage in international political environment. 1 2. SOUTH AFRICA South Africa(SA) is a culturally diverse country, one nation made up of many peoples. With 11 different official languages, a multiplicity of traditions and skin tones, SA is often called as the rainbow nation of Africa. A. Geography Located at the southern tip of the Afr Africa continent, SA has 48. 7 million people in the area of 1. 2 million km2. Among the population, 79. 3% are blacks, 9. % are whites, 9. 0% are colored and the rest of them are Asians. SA has three capital cities: Cape Town, the largest of the three, is the le legislative capital; Pretoria is the administrative capital; and Bloemfontein is the judicial capital (Figure 2). FIGURE 2. SOUTH AFRICA B. History In 1652 the Dutch East India Company founded a cape colony at Cape Town as a gateway to India. Cape Town became a British colony in 1806. European settlement expanded during the 1820s as the Boers (original Dutch, Flemish, German and French settlers) and the British 1820 Settlers claimed the land in the north and east of the country.
The discovery of diamonds and later gold triggered the conflict known as the Anglo Anglo-Boer War, as the Boers and the British fought for the control of the SA mineral wealth. Although the Boers were defeated, the British gave limited independence to SA in 1910 as a British dominion. In 1961, the country became a republic and Nelson Mandela, released from prison after twenty twenty-seven years’ incarceration on a sabotage sentence, bec became the first black president in SA. 2 C.
Racial Segregation Apartheid???meaning separateness in Afrikaans (which is cognate to the English apart and -hood)??? was a system of legal racial segregation enforced by the National Party government in SA between 1948 and early 1994. Racial segregation in SA began in colonial times, but apartheid as an official policy was introduced in 1948. Apartheid classified inhabitants into racial groups (“black”, “white”, “colored”, and “Indian”), and residential areas were segregated by means of forced removals.
The government segregated education, medical care, and other public services, and provided black people with services inferior to those of whites. Apartheid sparked significant internal resistance. Nelson Mandela ended the Apartheid in 1994 and launched Black Economic Empowerment (BEE) to give economic opportunities to previously disadvantaged groups (black Africans, Coloreds, Indians and Chinese). It includes measures such as employment equity, skills development, ownership, management, socio-economic development and preferential procurement.
Successful implementers of BEE also see it as a means to create economic growth in SA, and a vital element of their enterprises’ strategy. Table 1 shows the Balanced Scorecard which the Enterprises may be rated based on. All seven pillars must be addressed totaling 100 points. Table 1. The generic Balanced Scorecard Element Weighting Compliance Targets Ownership Management Control Employment Equity Skills Development Preferential Procurement Enterprise Development Socio- Economic Development 20 points 10 points 15 points 15 points 20 points 15 points 5 points 25%+1 (40% to 50%) (43% to 80%) 3% of payroll 70% 3% (NPAT) 1% (NPAT)
D. Economy By UN classification SA is a middle-income country with an abundant supply of resources, welldeveloped financial, legal, communications, energy, and transport sectors, a stock exchange that ranks among the top twenty in the world, and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the entire region. SA’s GDP (PPP) is 274. 5 billion USD, about 27% of the entire Africa, and ranked 25th in the world (as of 2007). Its GDP per capita is about 10,000 USD. Approximately one quarter of the population, however, is unemployed and lives on less than US$ 1. 5 a day. Fuelled by booming consumption and vigorous investment due to low interest rate and lower inflation rate, the economy of SA had been rapidly growing since 1999 till 2007 ??? before the global economic crisis incurred. The emergence of a black middle class, boosted by the Black Economic Empowerment (BEE) measures, and increased social expenditures are stimulating private 3 consumption and, in turn, the services and construction sectors. The growth rates were 4. 8% in 2004, 5. 1% in 2005, which was the highest growth rate for the last 84 years, and 5. 0% in 2006.
In 2007, growth even though the SA central bank increased the interest rate, the entire business was flourishing with the growth rate of 5. 1%. In 2008, however, shown that the global financial crisis, aggregated shortage of power, unstable inflation and continuous increase in interest rate drove the dramatic fall in private consumption and sluggish in productivity. It is estimated to be 3. 5% of the rate in 2008 (Figure 3). Economic Index 15 Growth Rate 10 % Inflation 5 0 2006 2007 year 2008 2009 FIGURE 2 GDP GROWTH RATE AND INFLATION RATE FROM 2006 TO 2009 E.
Response to the international Economics crisis The impact of the crisis on Africa comes from both direct and indirect channels. The direct effects have been felt mostly through the financial sector. For example, stock market volatility has increased since the onset of the crisis and wealth losses have been observed in the major stock exchanges. There is growing evidence that it has a negative effect on bank balance sheets and, if present trends conti continue, non-performing loans in the banking sector would likely increase, with dire consequences for performing financial stability in the region.
AT the end of 2008, the SA government announced the initiative of the Presidential Economic Joint Working Group in order to deal with the global economic crisis efficiently and effectively. This o working group includes basic principles and action practices to minimize the influence of its economical crisis with the collaboration of public and private sectors. l l Principle 1. The main beneficiary of this measure is low income employees and unemployed people who are vulnerable to economic shock. Principle 2. Protect all the activities to strengthen the core competence for sustainable . development and job creation.
Based on the above, SA government will keep executing the investment without any problem as planned for the next 3 years. In addition, the government might restrict import to protect its domestic industries such as automobiles, textile, shoes and construction equipment equipments. 4 PART 2 : CURRENT ANALYSIS 1. TRADE IN SOUTH AFRICA A. Trade In 2008, the exports reached 80,207million USD which is up 12. 9% from 2007. This is because the boosting of manufacturing industry due to private consumption boom, reduced exporting unit price due to the devaluation of ZAR, increase in the price of raw materials such as gold and platinum.
Imports in 2008 hit 91,058 million USD, up 12. 2% from 2007, which was effected by the increasing imports demand, growing investment by enterprises, rising imports of capital assets due to expanded infrastructure demand for 2010 FIFA World Cup, and high price of imported crude oil. SA has rich mineral resources. It is the world’s largest producer and exporter of gold and platinum and also exports a significant amount of coal. Another major export is diamonds. The value-added processing of minerals to produce ferroalloys, stainless steels, and similar products is a major industry and an important growth area.
The country’s diverse manufacturing industry is a world leader in several specialized sectors, including railway rolling stock, synthetic fuels, and mining equipment and machinery. 200000 150000 SA 100000 Southern Africa 50000 0 2000 2005 2006 2007 Africa FIGURE 4 IMPORTS OF SA 30000 20000 10000 0 2000 2005 2006 2007 SA Southern Africa Africa FIGURE 5 EXPORTS OF SA 5 Table 2 Major Imports (left) and Exports (right) Items Items Platinum Gold ferroalloy Coil Centrifugal Separator Automobile Diamond Aluminum Stainless steel Iron ore Imports (m USD) 2700 947. 7 528. 4 369. 6 321. 9 320. 7 315. 2 287 248. 2 108. Weight 35. 8% 12. 6% 7. 0% 4. 9% 4. 3% 4. 3% 4. 2% 3. 8% 3. 3% 1. 4% Items Crude Oil Automobile Petrochemicals Wireless device Computer Truck Heavy Equipment Medical supplier Parts of automobile Diamond Exports (m USD) 220. 9 218. 4 186. 3 183. 5 168. 8 161. 3 160 158. 4 153. 1 136 Weight 5. 0% 4. 9% 4. 2% 4. 1% 3. 8% 3. 6% 3. 6% 3. 6% 3. 4% 3. 0% A. Regional Integration SA is the biggest economic power among southern Africa nations and posses more than 70% of southern Africa’s productivity and trade. SA formed southern Africa economic cooperation including SADC and SACD to bolster the FTA negotiation power.
FIGURE 6 SOUTH AFRIC AND RTA AFRICA 6 B. Southern African Custom Union (SACU) SACU is the oldest customs union in the world. It was established in 1910 as a Customs Union Agreement between the then Union of SA and the High Commission Territories of Bechuanaland, Basutoland and Swaziland. With the advent of independence for these territories, the agreement was updated and on December 11, 1969 it was relaunched as the SACU with the signing of an agreement between the Republic of SA, Botswana, Lesotho and Swaziland. The updated union officially entered , into force on March 1, 1970.
After Namibia’s independence from SA in 1990, it joined SACU as its fifth member. A. Free Trade Agreement (FTA) The government has been trying to attract the investment from foreign companies. SA already signed rying on the agreement with EU (Jan, 2000), EFTA (May, 2008), SACU. With USA, MERCOSUR and SADC, the negotiations are on-going, while the agreement with India and China is on hold. going, FIGURE 7 SOUTH AFRICA AND FTA 2. FDI IN SA A. Openness toward FDI Since the recent economic boom with the expectation of the 2010 FIFA World CUP, many countries are interested in investing in SA.
The government is also eager to have more foreign direct investments (FDI) and abolished all the related restrictions preventing FDIs. The government is preventing allowing foreigner to own 100% share of all kinds of industries except banks and media industries. 7 The government endows foreign investment organization which can boost the SA economy by contributing to the flowing categories. Tax exemption and financial support are included in those incentives. l l l l l Broad Investment in SA Black Economy Empowerment Innovation and Technology Competitiveness and export capabilities Industrial Development Zones
B. Inflows and outflows In recent years, inflows rose to 36 billion USD in 2006 from 2. 4 billion USD in 1985 and likely to remain at about 36 billion USD in 2007. South African FDI inflows in 2006 were about 20% of the region’s its gross fixed capital formation. In SA, FDI rose in the primary and services sectors, partly because of the exploitation of SA’s vast natural resources and a wide range of national privatization schemes. As a result, inward FDI stock in the region rose to 315 billion USD in 2006, continuing a long climb from 42 USD in 1985.
The recent surge of FDI inflows to SA, particularly over the period 2001-2007, followed from the twin forces of an upward spiral in commodity prices and a more positive climate for investments (Figure 8). These changes were backed by reforms of policy frameworks for FDI, including changes in regulations related to natural resource exploitation. 8000 6000 4000 2000 0 -2000 2000 2004 2005 2006 2007 inward outward FIGURE 8 FDI FLOWS IN SA 100000 80000 60000 40000 20000 0 inward outward 1990 1995 2000 2006 2007 FIGURE 9 FDI STOCK IN SA 8 C. Who are investing on what industries?
Top 10 countries who invested in SA are shown in Figure 10 (as of 2006). UK is the biggest foreign investment country with 440,257 million ZAR, followed by Germany ( 4,121 million ZAR), USA ,257 (34,121 (33,378 million ZAR), and Holland (22 378 (22,106 million ZAR). Mining and manufacturing are the biggest investment industries in SA. FIGURE 10. TOP 10 COUNTRY WHO INVEST IN SA (MILLION ZAR) . 1,983 13,809 16,172 Indurstries in SA 888 29 527 Mining Production Finance 162,521 250,361 Retail Transportation Construction 165,432 agriculture&fisheries Energe FIGURE 11. BIGGEST INVESTMENT INDUSTRIES IN SA (MILLION ZAR) . LLION 9 3.
DISADVANTAGES OF S OUTH AFRICA A. Crime in South Africa Crime is a prominent issue in SA. According to a survey by UN for the period 1998-2000, SA was ranked second for assault and murder (by all means) per capita and first for rapes per capita. Total crime per capita is 10th out of the 60 countries in the dataset. Note that these statistics only compare statistics from approximately 60 countries (typically better-developed countries). Although, from 2003 – 2009, the official police data shows that the murder and crime rate has been stabilized. B. HIV/AIDS SA is the country with the largest number of HIV infections in the world.
The country’s Department of Health estimates that 18. 3% of adults (15???49 years) were living with HIV (in 2006). Rising death rates lowered life expectancy at birth to 49 years for males and 52. 5 years for females in 2006. HIV/AIDS has a tremendous impact on all sectors of the SA’s economy which includes microeconomic and macroeconomic perspectives, such as a decline in total labor supply, a decline in labor productivity resulting from HIV/AIDS-related morbidity, increase in production costs, prices, and a decline in aggregate demand, savings and investment, and increase in household and government expenditures.
C. Brain Drain SA has been experiencing a “brain drain” in the past 20 years. About 25% of college graduates leave the country for the USA and 9. 7% of all international medical graduates practice in Canada. This is believed to be potentially damaging for the regional economy. Among the reasons for wishing to leave the country was the declining quality of life. After the demise of Apartheid, the dissatisfaction has been growing in terms of the cost of living, level of taxation, safety and security, and the standard of public and commercial services in SA.
Also, BEE boosters to reduce the availability of work for those classified as white, who are highly skilled and wealthy enough to consider emigration. 4. ADVANTAGES OF SOUTH AFRICA Despite of disadvantages mentioned above, SA is still attractive market to foreign nations to do the business. SA’s economic prospective is marked above other African nations and even NEXT-11 countries. SA itself is a sophisticated and promising market, offering a combination of well-developed First World economic infrastructure with a vibrant emerging market economy.
Since the current government came to power in 1994 the country has made tremendous strides towards becoming a major contributor in international markets. SA has abundant natural resources, a well developed banking system, good infrastructure with major capital injections to upgrade this further, a reasonable tax structure, a business culture, a fairly stable political climate, a stock exchange ranked among the top 20 in the world, and is the gateway to other African markets.
Figure 13 summarizes the advantages of SA market. 10 FIGURE 12. POSITION OF SOUTH AFRICA AS A NEXT 11 COUNTRY . FIGURE 1 ADVANTAGES OF SA MARKET 13. 5. INDUSTRY IN S OUTH AFRICA ??? 5 KEY SECTORS A. Automotive industry SA’s automotive industry is a global, turbo charged engine for the manufacture and export of vehicles ‘s turbo-charged and components. The sector accounts for about 10% of SA’s manufacturing exports, making it a ‘s crucial cog in the economy.
With annual production of 535 535,000 vehicles in 2007, expected to rise to ehicles 630,000 in 2008, SA can be regarded as a minor contributor to global vehicle production, which reached 73 million units in 2007. But, locally, the automotive sector is a giant, contributing about 7. 5% to the country’s GDP and employing around 36 000 people. The government has identified the DP 36,000 automotive industry as a key growth sector, with the aim of increasing vehicle production to 1. 2 11 million units by 2020, while significantly increasing local content at the same time.
For company lists please refer to Appendix I. FIGURE 14. VEHICLE SALES IN SOUTH AFRICA B. Mining and minerals Industry SA, known throughout the world as a treasure trove, boasts an abundance of mineral resources, producing and owning a significant proportion of the world’s minerals. SA’s wealth has been built on the country’s vast resources – nearly 90% of the platinum metals on Earth, 80% of the manganese, 73% of the chrome, 45% of the vanadium and 41% of the gold. Only crude oil and bauxite are not found here. FIGURE 15. SA’S SHARE OF WORLD RESERVES & PRODUCTION
C. Financial Service Industry SA’s financial services sector, backed by a sound regulatory and legal framework, is superb, boasting dozens of domestic and foreign institutions providing a full range of services – commercial, retail and merchant banking, mortgage lending, insurance and investment. SA’s banking sector compares favorably with those of industrialized countries. Foreign banks are well represented and electronic banking facilities are extensive, with a nationwide network of automatic teller machines (ATMs) and internet banking facilities available.
The Financial Services Board oversees the regulation of financial 12 markets and institutions, including insurers, fund managers and broking operations but excluding banks, which fall under the South African Reserve Bank. The South African banking system is well developed and effectively regulated, comprising a central bank, a few large, financially strong banks and investment institutions, and a number of smaller banks. Many foreign banks and investment institutions have set up operations in SA over the past decade.
The Banks Act is primarily based on similar legislation in the United Kingdom, Australia and Canada. Although no formal agreements have been concluded towards a consistent international position in the area of banking regulation, there have been amendments to exchange controls as well as financial market legislation, making SA an attractive investment prospect. Investment and merchant banking remains the most competitive front in the industry, while the country’s “big four” banks – Absa, First National Bank, Standard Bank and Nedbank – continue to consolidate their grip on the retail market. D.
ICT and Electronics Industry The leader of information and communication technology (ICT) development in Africa, SA is the 20th largest consumer of IT products and services in the world. As an increasingly important contributor to SA’s GDP, the country’s ICT and electronics sector is both sophisticated and developing. SA’s IT industry is characterized by technology leadership, particularly in the field of electronic banking services. South African companies are world leaders in pre-payment, revenue management and fraud prevention systems and in the manufacture of set-top boxes, all exported successfully to the rest of the world.
E. Chemicals industry SA’s chemicals industry, including fuel and plastics fabrication as well as pharmaceuticals, is the largest of its kind in Africa, and has been identified by the government as a key driver of economic growth. It dominates manufacturing in SA, adding more value to the economy than any other sector and accounting for over half the jobs created by manufacturing as a whole. While the industry remains dominated by local companies, a number of multinationals have local distribution points and several have become involved in local manufacture.
A highly competitive consumer electronics market producing high value-added electronic products also plays an important role. 6. DOING BUSINESS ??? GLOBAL CORPORATIONS IN SA After the release of Nelson Mandela in 1990, both business and diplomatic relations with the rest of the world began to expand – slowly. Following the democratic elections of 1994, SA’s corporations moved with alacrity into the rest of Africa and beyond. Today, SA-based companies are rapidly expanding their global profile and proving that they can compete with the best multinational companies in the world.
Global expansion may or may not enable a firm to attain the goal accordance with their strategy ??? whether it is globalization, localization, transnational or internationalization strategies. We analyzed the possible basic strategy for SA’s best firms (refer to Appendix IV for the full list of the multinational company) based on their industry type, business size and other factors (Figure 16). According to our analysis, most of the mining, energy and jewelry industries will pursue international strategy because they are facing neither cost nor local responsiveness. Some of the mining companies 13 uch as DeBeers might be in the cross area between international and global strategy as they are not only mining but also processing the minerals, which faces higher cost pressure. On the other hand, financial firms tend to be performing localization strategy by customizing their products offering, marketing strategy, and business strategy fit to SA’s condition. Many service areas are so competitive so that they must adopt a transnational strategy. This involves a simultaneous focus on reducing costs, transferring skills and products, and boosting local responsiveness.
Implementing this strategy is very complex and challenging, therefore building an organizational capability of supporting this strategy must be proceeded before attempting. FIGURE 16. SA’S TOP COMPANIES AND THEIR BASIC STRATEGY South Africa’s big companies have spread their wings abroad SA now boasts many successful multinationals. Their achievements vividly illustrate how firms from developing countries can prosper abroad, especially in emerging markets, which they understand and can sometimes navigate better than their rich-world competitors. The Anglo American Corporation and De Beers are among the top mining companies in the world.
SABMiller has become a global brewing giant. Sappi is big in the world of paper, and MTN has become a household name in many African countries. Dimension Data (Didata), which provides computer services, operates in over 30 countries. Old Mutual???SA’s biggest financial firm???bought Sweden’s oldest insurance company last year. And Sasol, an energy and chemicals company, operates in over 20 countries worldwide. 14 The release of Nelson Mandela in 1990 heralded a big change for South African business, which had been confined within its own borders for much of the previous decade.
The rest of Africa was no longer out of bounds. The lifting of American sanctions against SA in July 1991, and of UN restrictions a few years later, opened the doors to the world. But South African firms had to remake themselves first. Their inability to invest abroad prompted local companies to invest in each other. As a result, the business landscape was dominated by conglomerates enmeshed in complicated crossholdings. Besides mining, for example, Anglo American was involved in beer, banking, insurance and media.
Similarly, South African Breweries (SAB)???which counted Anglo American among its shareholders???had interests in hotels and retail chains, and also manufactured shoes, furniture, textiles and matches. For computer firms like Didata, set up in 1983, sanctions meant that the technology they needed, much of which originated in America, was largely out of reach. This obliged the company to develop its own systems and become self-sufficient. “We had to do it all ourselves,” recalls Jeremy Ord, Didata’s chairman. Isolation also shielded SA from competition, which in some industries helped to foster the creation of national champions.
Once they were able to turn their gaze beyond their own borders, SA’s business octopuses started selling their non-core assets. From inward-looking, tentacled conglomerates, many transformed themselves into global firms focused on particular markets. Although big companies still dominate SA’s business landscape, their grip has loosened considerably and international exposure has transformed their corporate cultures. 7. GLOBALIZATION OF SOUTH AFRICA One of the most important policy challenges facing SA today is to respond to the changes in the way in which the world economy works.
These changes in the world economy are known as globalization. SA went from being one of the ugliest societies in the world to the most hopeful through globalization. SA is one of the post BRICs countries and a lot of companies are willing to invest in SA. SA is a beachhead for the Africa regeneration. It is the largest economic market in Africa and takes 70% of African trade. That’s why most of multinational companies such as GE, Samsung, Toyota and GM branch out in SA. After the release of Nelson Mandela in 1990, both business and diplomatic relations with the rest of the world began to expand – slowly.
Following the democratic elections of 1994, SA corporations moved with alacrity into the rest of Africa and beyond. Mining houses led the way, followed by manufacturers and financial institutions. Trade mushroomed, mostly in favor of SA. As exchange controls were eased, companies began investing offshore and listing on foreign bourses. Today, SAbased companies are rapidly expanding their global profile and proving that they can compete with the best multinational companies in the world. Now SA is facing a huge opportunity, the 2010 FIFA world cup. This world festival will pump around 21. billion ZAR to SA’s economy, generating an estimated 12. 7 billion ZAR in direct spending and creating an estimated 159,000 new jobs. Between now and then, SA will invest 5 billion ZAR on building and renovating 10 world cup stadiums, 5. 2 billion on upgrades to the country’s air ports, and 3. 5 billion on improvement to the country’s road and rail network. The country’s tourism industry will be also benefited from the estimated three million visitors. The festival will bring the sustainable economic lift in subsequent years. 15 8. 2010 WORLD CUP OPPORTUNITIES A. Economic Opportunities Economic Opportunities Come June 2010, an estimated 2. million spectators will watch the FIFA World Cup???’s 64 matches played around the country. And when the final is shown, a television audience of up to 28 billion people will have their eyes glued on SA. 2010 is an opportunity to speed up growth and development, to market this country and the continent to the world; and an opportunity to grow local entrepreneurship. Although certain areas of commercial activity are limited to FIFA and its sponsors – and there will be strict restrictions on sales, marketing and advertising in designated areas such as stadiums – there will still be openings for local businesses.
Grand Thornton which is US consulting firm expect that economic effect of the 2010 World Cup will be about 7billion dollar. (Direct GDP growth: 3. 6 billion, Infrastructure and stadium construction: 2. 2 billion dollar, ticket and tax: 1. 2 billion). One of the big social problems of SA is the high unemployment rate. However 2010 World Cup will create the 160,000 new jobs and unemployment rate will be decreased. There will be a not only direct effect in the short term but also indirect effect in the long term.
For example, image enhancement of SA and companies, another chance to held international festival, confidence enhancement about economy and FDI increases. B. Tourism opportunities The hundreds of thousands of visitors who will pour into the country during the event will boost opportunities in accommodation, health services, travel services, short-term insurance, event management, logistics, arts, crafts and entertainment. Visitor numbers to SA, which is already a major tourist destination, should be boosted significantly during and after 2010.
Small businesses in the hospitality sector stand to benefit widely. Currently tourism takes 7% of the whole SA GDP and this will be significantly increasing with enhanced international profile. Estimated 2. 7million people will visit SA and tourism industry will ensure visitors a unique and truly African experience during the four week event. Tourism industry makes such a significant contribution to their economy. Indirect impact may be more meaningful for a sustainable tourism lift in subsequent years. It will help change the perceptions of SA and attract more and more people. 6 PART 3 : CASE STUDIES A. BEST PRACTICES n Case 1: M-Tek SA had been isolated from the international society because of the UN’s economical regulation so that they had only local suppliers whose quality was not so competitive. Aberdare and ATC are the local incumbent suppliers of the optical fiber industry for government project for a long time. M-TEK is a subsidiary of Taihan Electric Wire Co. Ltd. (South Korea). Malsela Technology Co. (SA), very famous ferrous company established in 1911, was a company which a black entrepreneur had undertaken Union Steel Corporation.
M-TEK acquired Malsela Technolgy for the purpose of obtaining eligibility for bidding government project. The bid was successful and M-TEK signed the contract to supply 350,000km of optical fiber for 35m USD until 2004. Upon completion of this contract with high quality product, M-TKE extended the contract to supply 1m fiber km for 10b USD for the next 3 years. The key success factors are shown in below. 1. Product differentiation M-TEK assured product quality with advanced technology and offered longer warranty of 15 years (other competitors’ warranty was only 1-2 years).
Government policy that encourages foreign investment also helped the negotiation. 2. Adaptation of BEE M-TEK enabled black people to own a part of the company’s stock to get high ratings on the BEE Scorecard. 3. Government Attitude After the black government was established, the new government personnel and public enterprises had a resistance to existing firms who had been enjoying the vested rights by Apartheid. During Apartheid, existing firms formed political and economical cartels. Therefore, Telkom preferred new entry firms to incumbent enterprises. n
Case 2: LG electronics in South Africa LG Electronics SA was established in 1997 and in its ten year history the company has grown rapidly. From nowhere LG are the number one brand in SA for washing machines, home theater, airconditioners, microwave ovens and monitors. Even there are LG brand shops which sell only LG product in heart of Pretoria which is administrative capital of SA. Revenue of LG Electronics SA is about 500million dollar and they expect to reach 1billion dollar by 2010. They have been trying to positioning their brand as a SA public company with 2010 World Cup.
Their success strategies are effective market segmentation and localized marketing. In SA they compete in five distinct segments of the market, each one is very competitive. Because there are big differences in terms of purchasing power and product preference depend on their class and region. LG’s Consumer Brown Goods (televisions, video and DVD players and of course an extensive range 17 of home entertainment systems) are proving very popular and while most competitors have experience a reduction in sales in this sector LG sales are at an all time high.
On top of that, LG was a main sponsor of Cricket World Cup which is very popular in SA. These Major events are contributing to these sales and enhancing the brand image. Recently LG Electronics SA appoints the local person as a head. Van Rooyen is the first non-Korean head of an LG Electronics subsidiary company globally. His appointment is part of LG’s global strategy that the company’s subsidiaries are lead by local people with local market knowledge thus ensuring LG remains locally relevant and a stronger globally competitive company. B. WORST PRACTICE: MCDONALD’S
McDonald’s has registered its trade mark in 1968, however, waited to enter the market until the Apartheid ends. In 1993, McDonald’s decided to enter the SA market. SA had been a colony of UK for a long time, so McDonald’s had a huge expectation to success in SA market. McDonald’s global strategy ??? serving high quality of fast food in 90 seconds at clean environment ??? attracted local people at the beginning. Sticking to their global strategy, however, like proving exactly same food ignoring local taste completely made their customers turn their back to McDonald’s.
The reasons why McDonald’s failed are listed in below; 1. Local prefers chicken to beef In SA, most of local people (especially, blacks) prefer chicken to beef, yet McDonald’s offered mainly beef burgers. Also, people are already accustomed to the existing tastes, not only local companies such as Nando’s, Chicken Liken, Steers and Bimbo’s, but also global companies such as KFC and Wimpy who had entered that market ahead of McDonald. 2. Price and quality |Issues McDonald’s chicken burgers are 30 % pricier than other brnad’s and beef burgers were so small and thin for South Africans. 18 PART 4 : CONCLUSION
SA is a culturally diverse country, one nation made up of many peoples. With 11 different official languages, a multiplicity of traditions and skin tones, South Africa is often called as the rainbow nation of Africa. Even though the Blacks account 79. 3% of the population, they are regulated by unofficial racial segregation for a long time, more than 300 hundred years, and legally Apartheid ruled Blacks from 1948. Nelson Mandela ended the Apartheid in 1994 as he became the president and launched Black Economic Empowerment (BEE) to give economic opportunities. BEE was so far gives positive effect on SA’s economy.
On the other hand, this also raises the brain drain of Whites who lost their vested right which became the social problem. After the release of Nelson Mandela in 1990, both business and diplomatic relations with the rest of the world began to expand – slowly. Currently, many SA-based companies are rapidly expanding their global profile and proving that they can compete with the best multinational companies in the world. SA is located at the southern tip of Africa continent. As Africa is emerging as post BRICs economy, SA is getting more and more attention from many foreign investors as a gateway to Africa continent.
In addition, abundant natural resources, biggest economic power, and well-developed infrastructure and financial system are additional advantages for being FDI destination. In 2008, compared to 2007, the exports reached 80,207million USD which is up 12. 9% while the imports hit 91,058 million USD, up 12. 2%. In recent years, inflows rose to 36 billion USD in 2006 from 2. 4 billion USD in 1985 and likely to remain at about 36 billion USD in 2007. And inward FDI stock in the region rose to 315 billion dollars in 2006, continuing a long climb from 42 dollars in 1985.
One of the successful multinational companies is Korea’s LG electronics. LG electronics started its business as a joint venture and later changed to wholly owned subsidiary. By successfully implement transnational strategy, now LG is the best electronics enterprise in SA. The impact of the crisis on Africa comes from both direct and indirect channels. The government will keep executing the investment without any problem as planned for the next 3 years. In addition, the government might restrict import to protect its domestic industries such as automobiles, textile, shoes and construction equipments. 9 Appendix I ??? List of global automobile Industries in SA Company Name Description In January 2008, Ford Motor Company of Southern Africa announced plans to invest more than R1. 5-billion to expand its operations in South Africa for the production of Ford’s next-generation compact pickup truck and Puma diesel engine. The local arm of the US car giant said the new investment would start in 2009 and be split between its assembly plant in Silverton, Pretoria and engine facility in Struandale, Port Elizabeth, with most of the vehicles produced earmarked for export.
General Motors South Africa, which is based in Port Elizabeth in the Eastern Cape, markets the brands Chevrolet, Opel, Isuzu, Saab, Cadillac and Hummer. In 2005, the company was awarded a six-year contract to assemble and export the Hummer H3, resulting in a US$100-million investment in its Struandale plant. GM South Africa is building a new multimillion-rand vehicle conversion and distribution centre and is investing another R481-million in its operations, upgrading its production facilities and tooling in 2008.
Mercedes-Benz South Africa manufactures Mercedes-Benz and Mitsubishi vehicles at its manufacturing plant in East London in the Eastern Cape. The company’s headquarters are located in Gauteng province, from where the Mercedes-Benz, smart, Maybach, Mitsubishi Motors, Freightliner, Western Star and FUSO brands are marketed and financed. Mercedes-Benz SA recently spent about R2-billion on upgrading its manufacturing plant, and now produces both right- and left-hand drives versions of the latest Mercedes-Benz C-Class car for domestic and export markets. Toyota South Africa recently completed a five-year, R2. -billion modernization and revitalization program. Its Prospection facility, just south of Durban, is now one of the most technologically advanced Toyota facilities in the world outside of Japan, and is capable of producing around 220 000 units a year. As a global production facility, Toyota South Africa has transformed from a purely local supplier into an effective export base to supply vehicles into markets in Europe and Africa. The company, which exports to more than 40 destinations, says it expects to export around 140 000 units in 2008, or almost 60% of total automotive exports from South Africa.
Volkswagen South Africa is located at Uitenhage near Port Elizabeth in the Eastern Cape. In 2007, the company celebrated its 56th anniversary in South Africa – and its 2. 5-millionth vehicle off the production line. It is a local leader in the passenger market, accounting for around 21% of all new vehicle sales. Between 2000 and 2008, Volkswagen South Africa invested around R6-billion in new models, a new paint shop and a new truck and bus assembly plant. Ford General Motors Mercedes-Benz Toyota Volkswagen 1 Appendix II ??? Global mining companies in SA Two of the world’s biggest mining companies originated in South Africa.
BHP Billiton, the world’s largest mining company, came after a merger between South African company Billiton and Australian firm BHP. Anglo American Plc, which has its primary listing in London and its secondary listing in Johannesburg, owns many major subsidiaries, such as Anglo Platinum, Anglo Coal, Impala Platinum and Kumba Iron Ore. Diamond miner De Beers, also a South African company, is owned by Anglo American and a consortium led by the Botswanan government. The world’s top diamond producer churned out about 51. 1-million carats in 2007.
Appendix III ??? List of Global IT companies in SA IT companies in SA IBM Unisys Microsoft Intel SAP Dell Novell Compaq Siemens Alcatel Ericsson Altech Grintek Spescom Tellumat Marconi. Headquarter New York, U. S. Pennsylvania, U. S. Washington, U. S. California, U. S. Walldorf, Germany TX, U. S. Massachusetts, U. S. Texas, U. S. Munich, Germany Paris, France Kista, Sweden Johannesburg, South Africa Pretoria, South Africa Johannesburg, South Africa Cape Town, South Africa London, UK 2 Appendix IV for the full list of the multinational company Company Logo Detail
One of the top five furniture groups in Europe, and the largest in Africa, the Steinhoff Group manufactures, warehouses and distributes a wide range of household goods (mainly comprising bedding, case goods and lounge furniture) as well as raw materials used primarily in the manufacturing of household goods. The company is an investment holding company. The trading subsidiaries and associated companies are engaged in the distribution of groceries and other related consumer goods mainly on a cash and carry basis. Industry Revenue Employee Strategy Steinhoff International Furniture US $6131 Million 5,000 Global Standardization Strategy Metro Cash & Carry Wholesale US $ 49. 3 Billion 100,000 Transnational Strategy Illovo Sugar Illovo Sugar is a leading, global, low-cost sugar producer and a significant manufacturer of high-value downstream products. The group has extensive agricultural and manufacturing operations in six African countries and also operates a beet sugar manufacturing plant in the United States. Agriculture US $1,171 Million – Global Standardization Strategy Alexander Forbes Alexander Forbes is a leading independent international provider of financial and risk services.
Listed on the JSE Securities Exchange South Africa, Alexander Forbes has, since 1998, been ranked in the world’s top 10 risk and benefit consultants. Financial Service, US $735 Million 4,919 Localization Strategy Nampak Nampak is Africa’s largest packaging manufacturer. In South Africa it is able to offer customers one of the widest product ranges of any packaging company in the world, providing them with a total solution to their packaging needs where necessary. Package Mfg US $2512 Million 15,743 Global Standardization Strategy 1 Avis Southern Africa
Avis Rent A Car System, Inc and its subsidiaries operate the world’s second largest general-use car rental business, providing business and leisure customers with a wide range of services at more than 1 700 locations in the United States, Africa, Canada, Australia, New Zealand and the Latin American/Caribbean region. Rent Car Service Transnational Strategy Impala Platinum Impala Platinum Holdings Limited ??? Implats ??? is in the business of mining, refining and marketing platinum group metals (PGM), particularly platinum, as well as nickel, copper and cobalt.
It is also involved in the secondary sourcing of platinum group metals where the company’s core refining competencies offer a competitive advantage. Mining US $5120 Million 55,000 International Strategy Sasol Active in over 20 countries and on six continents, Sasol is a global player in chemicals and fuels. Energy, Mining, Jewellery US $4,153 Billion 33,928 International Strategy Murray & Roberts A major group of world class companies serving the global value chain. Murrary & Roberts deals with the extraction, benficiation and industrialisation of natural resources.
It has a strong presence in southern Africa and focuses on the construction economies of the developing world. Construction Engineering US $4,597 Million 10,000 Transnational Strategy Anglo American Anglo is one of the world’s largest mining groups. Although mainly involved in gold, diamonds, and platinum production, it has extensive holdings in base and ferrous metals, forests, coal and industrial minerals. Mining US $ 26. 31 Billion 105,000 International Strategy 2 Richemont Securities
Richemont is a Swiss-based holding company with investments in tobacco, luxury goods and the electronic media. Some of its well-known brands include Cartier, Piaget, Dunhill and Benson & Hedges. The group is controlled by South Africa’s Rupert family. Luxury Goods US $7,906 Million 18,800 International Strategy De Beers Consolidated Founded by the Oppenheimer family, De Beers is the world’s largest producer of gem and industrial diamonds. Through its London-based Central Selling Organization (CSO), De Beers controls almost 65% of the world’s diamond, trade.
Exploration, Mining US $6,500 Million 20,000 Global Standardization Strategy Billiton Billiton is one of the world’s leading metals and mining companies, holding assets in base metals, coal, steel, ferroalloys, aluminium, titanium, nickel and copper. Didata designs, supplies and implements communication networks and information technology in 36 countries across six continents. Old Mutual, together with its listed subsidiaries Nedcor (banking) and Mutual and Federal (general insurance), is the largest financial services group in Southern Africa.
One quarter of its operating profits u generated outside Africa, mainly in the US and UK. First Rand was formed in 1998 when Anglo American and Rand Merchant Bank merged their financial services interests in First National Bank (SA’s third largest bank), Momentum Life and Southern Life. The group also owns listed subsidiary Discovery Health. Materials, Mining US $59. 5 Billion 38,267 International Strategy Dimension Data IT Service US $4,500 Million 11,000 Transnational Strategy Old Mutual Financial Service, Insurance, Banking US $8,419 Million 57,000
Localization Strategy First Rand Financial Service, Banking US $9,922 Million 43,510 Localization Strategy 3 Standard Bank Investment Corporation Stanbic Owns SA’s second largest bank (by total assets) and has a controlling interest in Liberty Life, the upper income life assurer. Stanbic operates in 14 African companies, as well as in the UK, US, Europe, Asia and Latin America. Banking US $154. 22 Billion 50,000 Localization Strategy M Cell M Cell is the owner of cellular phone network operator MTN, one of the largest and quickest growing in the world.
The group operates in Uganda, Rwanda, Cameroon and Swaziland and is aggressively pursuing expansion in other parts of Africa. ICT US $13. 88 Billion 15,000 Transnational Strategy Sappi Sappi is a global forest products group, with manufacturing facilities on three continents and marketing outlets in over 100 countries. The world’s leading producer of coated woodfree papers. SABMiller is one of the world’s largest brewers with a brewing presence in over 40 countries across four continents and a portfolio of strong brands and leading market shares in many of the countries in which it has brewing operations.
Outside the USA, SABMiller is one of the largest bottlers of Coca-Cola products in the world. An international brand management company focussed on heavy industrial products in Southern Africa, the UK, Europe, the US and Australia. Its best-known brand is Caterpillar. A major independent financial services group with activities in SA, Europe, the UK, the US and Israel. Paper Mfg US $5,850 Million 15,000 Global Standardization Strategy SABMiller Brewery US $21,370 Million 69,166 International Strategy Barloworld Heavy Industry US $6,370 Million 19,000
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