The impact of expansion into Africa on the financial performance of emerging market multinationals listed on the JSE

Abstract

The internationalisation performance relationship is a critical aspect of international business literature. However the focus has primarily been on multinationals from developed markets whilst multinationals from emerging markets have been largely ignored. The last decade has seen emerging market multinationals expanding at a rapid pace to effectively compete with its global rivals. This study is set within the emerging market context of Africa as it investigates the impact on financial performance of South African companies expanding into the continent. Longitudinal analysis over the period 2010 to 2014 analysed the effects of expansion on average net profit margin, average ROE, average share price and average market capitalisation. This study compared financial measures of 30 JSE listed companies that have expanded into Africa against 30 JSE listed companies that have no presence in Africa and also tested for the effect of degree of internationalisation, firm age and operations in multiple countries on performance. It was found that companies that expanded into Africa exhibited a lower average net profit margin and a higher average ROE when compared to their counterparts that had no presence on the continent. There was also evidence of an increase in average share price and average market capitalisation over the period which reflects the positive benefits of internationalisation. Whilst there was a significant positive correlation between average share price and operations in multiple countries there was no correlation between the degree of internationalisation and firm age on any of the financial performance measures. The research also indicates that the subject is very complex and more research is required.