Determining the investment decisions of South African retail firms' FDI into Africa

Abstract

This research investigates the determinants of outward foreign direct investment (OFDI) by South African retailers into Africa. This research advances the understanding of determinants for foreign direct investment (FDI) from developing countries in the retail sector. To date no systematic investigation has considered FDI outflow determinants in the retail sector from developing countries in Africa. South Africa is one of the largest FDI investors on the continent; therefore, it is important to understand what motivates them to invest in Africa. Most of the available literature focuses mainly on FDI from developed countries and is concentrated in the manufacturing sector. South Africa is a developing country and this research conducts a sectoral analysis of the retail sector FDI determinants into Africa. The lack of research on FDI determinants on FDI from developing countries calls for more detailed understanding of the determinants. A mixed-method approach was employed to ascertain the determinants of South African retail FDI in Africa. This involved an in-depth individual case study of selected companies' financial statements and other hard data, followed by a cross-case analysis of the companies. Interviews were conducted with top management responsible for African retail operations of their respective companies. The sample consisted several retailers as well as related developers. The retailers are chosen based on having operations nationally and investments in more than one country. The developers were included in the sample of interviewees due to the pivotal role they play in facilitating South African retailers' internationalisation process. These operations are conducted through the development of malls and shopping centres presented to retailers expanding business across Africa. The findings from the research show that market saturation at home, market size in host countries and strategic growth reasons are the major determinants for South African retail FDI expansion into Africa, all with an aim to generate profits to retailers. The South African market is highly saturated with limited avenues for new retail growth. South African retailers are attracted by the large market sizes with little to no formal retail in countries such as Nigeria and Ethiopia. Globalisation has made it important for the companies to grow by expanding abroad or risk failing due to intense competition at home. The findings offer insight into South African retail FDI determinants into Africa. The research can add an important aspect concerning the current knowledge base of South Africa's foreign economic policy towards Africa. This research is unique in that it helps advances in the knowledge base concerning the internationalisation programmes of South African retailers by performing cross-case studies to explore the motivations behind the how and why they increase their internationalisation through OFDI.