Fos­ter­ing in­ter­na­tion­al­i­sa­tion of African busi­nesses

Some of the top African in­vestors in China are from Mau­ri­tius, South Africa, Sey­chelles and Nige­ria.

Financial Nigeria Magazine - - Contents -

Ex­pand­ing a busi­ness abroad can of­ten rep­re­sent an ex­cel­lent op­por­tu­nity for the lo­cal en­ter­prise to reach a range of new cus­tomers. But in­ter­na­tion­al­i­sa­tion is a dy­namic process, and there is no one-size-fits-all method to it. There­fore, en­ter­prises of all sizes tend to fol­low spe­cific pat­terns as they ex­pand across bor­ders.

As I of­ten con­vey to my clients, es­pe­cially in Africa these days, the rea­sons for their con­sid­er­a­tions to ex­pand their busi­nesses abroad may be mo­ti­vated by var­i­ous dy­nam­ics. Re­gard­less, such dy­nam­ics should be driven by one or more of three eco­nomic fac­tors, namely: lo­ca­tion, scale, and scope.

Busi­nesses seek­ing to in­ter­na­tion­alise are usu­ally lim­ited in their re­sources and in­ter­na­tional ex­pe­ri­ence. Con­se­quently, they have to make im­por­tant de­ci­sions about the scale and scope of their in­ter­na­tion­al­i­sa­tion ef­forts. Scale refers to the ex­tent to which a busi­ness re­lies on in­ter­na­tional mar­kets in its op­er­a­tions such as mar­ket­ing, man­u­fac­tur­ing, and re­search and devel­op­ment (R&D). Scope in­di­cates the in­ter­na­tional geo­graphic reach, while lo­ca­tion refers to the off­shore mar­ket(s) in which an en­ter­prise con­ducts its busi­ness. Dif­fer­ences in the scale and scope of a busi­ness' in­ter­na­tional op­er­a­tions are of­ten at­trib­uted to the lo­ca­tion of their home mar­ket and in­dus­try con­di­tions or the at­trac­tive­ness of for­eign mar­kets, which may be an­other lo­ca­tion fac­tor (Dun­ning, 1988).

Yet, busi­nesses in the same lo­ca­tion, mar­ket or in­dus­try adopt very dif­fer­ent scope, spe­cialised in­ter­na­tion­al­iza­tion strate­gies, prob­a­bly be­cause of het­ero­gene­ity in their re­source en­dow­ments and di­ver­gent man­age­rial per­cep­tions of the op­por­tu­ni­ties and

threats as­so­ci­ated with in­ter­na­tional ex­pan­sion. These per­cep­tions re­flect se­nior man­agers' risk pref­er­ences that, in turn, are shaped by their own­er­ship stake. A busi­ness' suc­cess or fail­ure in in­ter­na­tional mar­kets can un­der­mine these owner man­agers' wealth, ca­reers, and pro­fes­sional rep­u­ta­tions. Hence, an ex­pan­sion abroad must be care­fully eval­u­ated and planned.

As an en­ter­prise ex­pands its op­er­a­tions into a for­eign mar­ket, man­agers are usu­ally faced with in­creas­ing risk and de­creas­ing prof­its as they try to cope with the chal­lenges im­posed by the in­ter­na­tion­al­i­sa­tion process. There is a learn­ing curve that these en­ter­prises need to fol­low, even with the best plan­ning ef­forts. Ex­per­tise is de­vel­oped grad­u­ally, and dur­ing that process, there is a high de­gree of un­cer­tainty. And the need for up­front in­vest­ment in­vari­ably saps short­term prof­its.

The Uptick

In­ter­na­tion­al­i­sa­tion of multi­na­tional en­ter­prises (MNEs) in Africa has been pick­ing up mo­men­tum. The rise in out­ward for­eign di­rect in­vest­ment (OFDI) from the con­ti­nent has co­in­cided with the re­duc­tion, in large part, in FDI in­flows from ad­vanced coun­tries.

No­tably, aside from South African in­vest­ments, lit­tle OFDI is stem­ming from other Sub-Sa­ha­ran African (SSA) coun­tries. Not­with­stand­ing, African OFDI has in­creased sig­nif­i­cantly. African in­vest­ments ac­counted for 13 per­cent of the to­tal global OFDI in 2015, up from only 0.2 per­cent in 2004, ac­cord­ing to United Na­tions Con­fer­ence on Trade and Devel­op­ment (UNCTAD). In the same vein, in­vest­ments by MNEs from emerg­ing, fron­tier and tran­si­tion economies con­tin­ued to grow. By 2014, emerg­ing mar­ket MNEs alone funded $468 bil­lion projects abroad, a 23 per­cent in­crease from the pre­vi­ous year. Emerg­ing Asia, for in­stance, now in­vests over­seas more than any other re­gion of the world.

Some of the most sig­nif­i­cant economies in SSA, in­clud­ing Nige­ria, South Africa, and An­gola, have ex­pe­ri­enced sharp slow­downs, or re­ces­sions, as lower com­mod­ity prices ex­ac­er­bate dif­fi­cult do­mes­tic, po­lit­i­cal, and eco­nomic con­di­tions. The pic­ture for SSA is one of vary­ing devel­op­men­tal growth. The IMF, in its Oc­to­ber 2017 Re­gional Eco­nomic Out­look, em­pha­sised the di­ver­gent trend in the re­gion. The av­er­age growth rate in the SSA re­gion is ex­pected to be 2.6 per­cent in 2017, ris­ing to 3.4 per­cent in 2018. But when Nige­ria and South Africa are ex­cluded, the av­er­age growth rises to 4.4 per­cent and 5.1 per­cent in 2017 and 2018, re­spec­tively.

In­ter­na­tion­al­i­sa­tion lev­els, how­ever, con­tinue to in­crease in sev­eral SSA economies, as sev­eral mea­sures, such as lower trade bar­ri­ers, are be­ing im­ple­mented. This was re­cently ex­em­pli­fied by the African Union's (AU) Con­ti­nen­tal Free Trade Area (CFTA) agree­ment signed in Ki­gali, Rwanda, last month, by 44 African coun­tries. It is my opin­ion, how­ever, that what mo­ti­vates MNEs to in­ter­na­tion­alise can be ex­plained by the fact that such en­ter­prises own spe­cific com­pet­i­tive ad­van­tages.

South Africa, an emerg­ing econ­omy, and the third largest in Africa, af­ter Nige­ria and Egypt (IMF, 2017), al­ready has sev­eral MNEs suc­cess­fully op­er­at­ing in spe­cific sec­tors across the African con­ti­nent. Com­pa­nies such as the mo­bile net­work op­er­a­tor, MTN, the brewer SABMiller (now ac­quired by An­heuser-Busch InBev, the world's largest brew­ing com­pany), Stan­dard Bank, Mass­mart, and Sho­prite, have pres­ence in at least a dozen other African coun­tries. Nige­ria, a fron­tier emerg­ing econ­omy, and the largest in Africa, has its own MNEs such as United Bank for Africa (UBA), Dan­gote Group, Globa­com, Guar­anty Trust Bank and First Bank al­ready es­tab­lish­ing sig­nif­i­cant foot­prints in the African sub-re­gion.

Ecobank, based in Togo, is only one of a group of Pan-African Banks (PABs) ex­pand­ing through­out Africa, with op­er­a­tions in 36 coun­tries, most of them fron­tier economies. The Bank of Africa, based in Mali, has op­er­a­tions in 14 African na­tions, while Kenya's Eq­uity Bank and KCB Bank have op­er­a­tions in more than four coun­tries in the African con­ti­nent.

African MNEs, how­ever, are not only in­ter­na­tion­al­is­ing within the con­ti­nent, as sev­eral are also ex­pand­ing their foot­prints out­side of it. As of 2016, African MNEs had in­vested a cu­mu­la­tive $14.2 bil­lion in China alone, a 43 per­cent in­crease from the $9.9 bil­lion funded by 2009 (Peng, 2006; Alves, 2016). Some of the top African in­vestors in China are from Mau­ri­tius, South Africa, Sey­chelles and Nige­ria.

SABMiller pro­duces and sells one of its brands, Snow beer, and the world's best­selling beer by sales vol­ume, only in China. The com­pany runs the brand as a joint ven­ture with a Chi­nese en­ter­prise and pro­duces many other favourite Chi­nese beer brands as well. Tu­nisia's in­vest­ment in China's fer­til­izer pro­duc­tion has an even longer his­tory. Ini­tially launched as a crit­i­cal project of China's 8th Five-Year Plan, the Sino-Arab Chem­i­cal Fer­til­iz­ers Com­pany (SACF) was a joint ini­tia­tive reached by Tu­nisia and China when Tu­nisia's late Prime Min­is­ter Mo­hammed Mzali vis­ited Bei­jing in 1984.

The role of na­tional gov­ern­ments

Pub­lic pol­icy at lo­cal and na­tional lev­els can play a sig­nif­i­cant role in en­cour­ag­ing in­ter­na­tional en­trepreneur­ship and MNE in­ter­na­tion­al­i­sa­tion. Such in­ter­ven­tion can help in tack­ling var­i­ous mar­ket fail­ures, which might oc­cur. While there are mul­ti­ple ac­tors and many po­ten­tial ar­eas for ac­tion, there are no stan­dard poli­cies, prod­ucts or ap­proaches that will work in every cir­cum­stance in sup­port­ing MNE's in­ter­na­tion­al­i­sa­tion process. My rec­om­men­da­tion, as a first step, is to gather data about the MNE's pop­u­la­tion in the coun­try be­fore the ap­pro­pri­ate ac­tions or poli­cies can be de­vel­oped. Once the MNEs are iden­ti­fied, they should then be seg­mented, not just per size and in­dus­try, but also per growth ori­en­ta­tion.

Fur­ther as­sess­ment is then re­quired to de­ter­mine the needs of those groups of MNEs. At that stage, it is es­sen­tial to reach out to the ex­ist­ing MNEs, to learn di­rectly from them, re­gard­ing the chal­lenges and op­por­tu­ni­ties they face in their in­ter­na­tion­al­i­sa­tion ef­forts. Pro­duc­tive di­a­logue be­tween pol­i­cy­mak­ers in the coun­try and MNE's up­per man­age­ment can be a sig­nif­i­cant chal­lenge, how­ever. This is be­cause MNEs have vary­ing needs and ex­ec­u­tives have lim­ited time. Sup­port and in­ter­ven­tions, there­fore, need to be both tar­geted and of good qual­ity.

Gov­ern­ment sup­port, as well as the sup­port of many other coun­ter­parts, such as diplo­matic mis­sions abroad, com­mu­ni­ties of prac­tice, busi­ness en­ter­prises, and en­trepreneurs, can be of as­sis­tance to these MNEs. These in­sti­tu­tions can as­sist MNEs within the quan­ti­ta­tive as well as the qual­i­ta­tive sense, in­clud­ing help­ing those with lower pro­duc­tiv­ity and scarce man­age­ment re­sources to en­ter high-growth mar­kets with more strin­gent en­try bar­ri­ers. With­out such sup­port, only a mi­nor­ity of typ­i­cally large MNEs can en­joy the ben­e­fits of in­ter­na­tion­al­is­ing. In fact, sup­port of MNEs' busi­nesses in high-growth mar­kets is re­garded as an es­sen­tial pol­icy by many pol­i­cy­mak­ers in the OECD coun­tries.

The role of sub-na­tional gov­ern­ments

Lo­cal gov­ern­ments and devel­op­ment agen­cies should be very ac­tive in the de­sign and de­liv­ery of in­ter­na­tional en­trepreneur­ship pro­grammes, in­clud­ing but not lim­ited to pro­mot­ing ex­ports and in­ter­na­tion­al­i­sa­tion. Given the prox­im­ity of sub-na­tional gov­ern­ments to lo­cal MNEs, there is a need for such gov­ern­ments to take the ap­pro­pri­ate, and tar­geted ac­tions to im­prove the growth and in­ter­na­tion­al­i­sa­tion of MNEs within their ju­ris­dic­tions.

The work of spe­cialised agen­cies geared to­wards sup­port­ing and pro­mot­ing MNEs also plays a sig­nif­i­cant role in MNEs in­ter­na­tion­al­i­sa­tion. These agen­cies should be able to sup­ply valu­able in­for­ma­tion, pro­vide crit­i­cal net­work­ing plat­forms and al­low for the ex­change of ideas and best prac­tice.

Pub­lic poli­cies are crit­i­cal in pro­vid­ing the right en­vi­ron­ment and in­cen­tives for MNEs through their process of in­ter­na­tion­al­i­sa­tion. The role of the gov­ern­ment should, how­ever, be fa­cil­i­ta­tive, not dic­ta­to­rial, and pub­lic fi­nan­cial sup­port should never be more than 50 per­cent, as most top-down pre­scrip­tions do not yield the in­tended re­sults. Also, too much pub­lic fi­nan­cial sup­port, with­out coin­vest­ment by the pri­vate sec­tor or mar­ket, can hin­der rather than help by cre­at­ing pos­si­ble mar­ket dis­tor­tions. These MNEs must be mar­ket-driven and com­pet­i­tive. If they are overly de­pen­dent upon pub­lic sup­port, they surely will not be sus­tain­able.

Con­clu­sion

The in­ter­na­tional busi­ness en­vi­ron­ment is con­tin­u­ously chang­ing, as are the op­por­tu­ni­ties for African MNEs. Gov­ern­ments, spe­cialised agen­cies, academia, and other pri­vate con­cerns sup­port­ing MNEs also need to mod­ify their ap­proaches as nec­es­sary. Oth­er­wise, their ef­forts would end up ad­dress­ing prob­lems of the past and they would be­come in­ef­fi­cient in deal­ing with cur­rent and fu­ture is­sues.

Mar­cus Goncalves, Ph.D., In­ter­na­tional Man­age­ment Con­sul­tant, As­so­ciate Pro­fes­sor of Man­age­ment, Chair In­ter­na­tional Busi­ness Pro­gram, Ni­chols Col­lege, Dudley, MA. USA – mar­cusg@mgc­gusa.com, mar­cus.goncalves@ni­chols.edu.

Sup­port of MNEs' busi­nesses in high­growth mar­kets is re­garded as an es­sen­tial pol­icy by many pol­i­cy­mak­ers in the OECD coun­tries.

UBA House, Ma­rina, La­gos

Nige­rian Em­bassy in Wash­ing­ton DC

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