Market-specific factors, cultural differences and emerging market firms : South African firms internationalising into sub-Saharan Africa

Abstract

Over the past two decades, sub-Saharan Africa has witnessed a significant increase in the level of inward FDI. Annual GDP growth rates that are above those realised in the developed world and numerous policy reforms targeted at liberalising economies have spurred this growth in inward FDI. Both South African and Chinese firms have emerged as the primary protagonists behind these inward FDI investments into the sub-Saharan African region. The primary objective of this paper was to develop a deeper understanding of internationalisation efforts of South African firms into the sub-Saharan African region. Focus has been placed on market-specific factors, cultural differences and the dynamic of emerging market firms internationalising into other emerging markets. Data collected from ten semi-structured interviews conducted with both managers and consultants that have been directly involved with expansion efforts into sub-Saharan Africa were coded with the aid of ATLAS.ti. An analysis of the results in relation to elements of the Uppsala Model, the Eclectic Paradigm and the CAGE Framework, highlights the following key findings. Firstly, South African firms consider the same market-specific factors when internationalising into sub-Saharan African as those that are considered by internationalising firms from developed markets. Secondly, cultural differences have the propensity to impact the success of an internationalisation effort of South African firms, often resulting in increased costs, integration delays, communication difficulties, knowledge transfer barriers and extended periods before profitability is achieved. Finally, South African firms possess competitive advantages when internationalising into sub-Saharan African as a result of a contextual understanding with regard to local factors that are unique to emerging markets.