Global companies' investment strategies in South Africa

¶ … South Africa

Trade

Global companies that are sited in South Africa exult about the county's numerous commercial advantages including an idyll bases for exporting products internationally, low labor costs, and excellent infrastructure.

According to Jim Myers, president of the American Chamber of Commerce in South Africa, almost 50% of its members are representatives of Fortune 500 companies and over 90% of these companies have pointers in southern Africa, sub-Saharan Africa, and all across the continent:

The sophisticated business environment of South Africa provides a powerful strategic export and manufacturing platform for achieving global competitive advantage, cost reductions and new market access (Global companies in South Africa.)

Some of the global companies in alphabetical order located in South Africa are the following:

Acer Africa -- occupied with peripherals and printers since 1980.

Agrid South Africa - manufacturers of diesel/petrol engines and agricultural implements for small farmers

Barclays Bank -- world famous. One of South Africa major 4 banks.

BMW South Africa -- car production line.

EDS South Africa: a leading IT firm

Volkswagen South Africa -- a subsidiary of the renowned Volkswagen company and renowned for its affordability.

These are just some of the numerous global companies that have either originated from South Africa, or that have chosen South Africa as their base of operations. Why they have done so is pithily explained by Hertz International -- whose recommendation of South Africa deserves to be quoted as indication of the nation's financial advantages:

South Africa enjoys a sophisticated financial market that can facilitate the rapid expansion of a capital intensive industry like car rental. The market in South Africa presents Hertz with an excellent business opportunity as the country continues to become more closely integrated into the global community. (Hertz International vice-president Charles Shafer )

http://www.southafrica.info/business/investing/globalcomps.htm#ixzz1aJeXqejn

Levi Strauss too attributed their selection of South Africa as country of origin praising South Africa for its dynamic and stimulating environment: "To operate in an environment as sophisticated and as dynamic as this has helped Levi Strauss achieve a return on investment two years ahead of projections." (Levi Strauss (SA)). What higher credential than this can a country seek?

Singapore Airline on the other hand was attracted to South Africa due to "its natural environment, its diversity, the richness of its peoples and landscape

(http://www.southafrica.info/business/investing/globalcomps.htm#ixzz1aJfqraSt).

Apparently, there are various aspects that draw people to the country and inspire them to launch it as their base for international trade.

South African's natural sectors include natural mining particularly diamond, gold, precious, metals, and coal; agriculture (with agricultural exports totaling 8% of the national exports); manufacturing (with the automotive industry especially constituting approximately 10% of the country's exportation; and telecommunications (with South Africa reputed to have the 4th most advance telecommunications system worldwide).

Key exports of South Africa include corn, diamonds, fruits, gold, metals and minerals, sugar, and wool. Other important exports include transportation and machinary as well as petroleum, manufactured goods, and chemicals. Helpful to encouraging investors is the fact that the Overseas Private Investment Corporation (OPIC) was recently established to assist U.S. investors in the South African market with services such as loans and poltical risk guarantees.

As indicator of its international spot in trade, South Africa has actually achieved top rankings out of 142 surveyed countries for regulation of exchanges and it has achieved second place for the stability of banks in the World Economic Forum's (WEF's) latest Global Competitiveness Index,

It is also the 50th country out pf 1242 surveyed countries on that index assessing pitch and level of competitiveness amongst various international countries with 14000 countries responding as per the year 2011.

A drop in past years was made up during the 2010-2011-year by South Africa climbing to 50th position due to technological readiness, strength in investor protection, and the solidity of its private institutions.

The World Economic Forum's (WEF's) latest Global Competitiveness Index ranked the country as:

1st for regulation of securities exchange.

1st for strength of auditing and reporting standards.

2nd for soundness of banks.

2nd for efficacy of corporate boards.

3rd for protection of minority shareholders' interests.

3rd for availability of financial services.

4th for financing through the local equities market.

7th for effectiveness of anti-monopoly policy.

8th for legal rights. (Economy)

Among the nations in its region and scored according to competitive advantage, South Africa is ranked second to China and ahead of Brazil, India, and Russia. In short, this makes South Africa a highly attractive country for international trading and gives it a prospective future. Attractive to prospective foreign investors is the fact that South Africa's Department of Trade and Industry South Africa has generated new incentives in order to attract foreign companies to its shores and to stimulate outsourcing and off shoring. Attractive to local companies is the fact that South Africa has approved grants worth R157.76-million to be granted to 10 projects over the coming three years. The prospects of the opening of 11000 jobs making these companies more competitive.

Culture

South Africa is known as the 'rainbow nation' for its multifaceted nations and range of languages, customs, and different people. Renowned or notorious for its turbulent history, South Africa is best known for its saga with apartheid but has recently surmounted that although the consequences and ripples are still felt with its aftereffects of national unrest. The government has been attempting to end racial discrimination but this still remains a huge problem.

Advising businesses how to interact with South Africa, or trying to formulate a South African culture remains difficult since the different races still remain apart and disintegrated with the dream of a unified 'rainbow nation' not actualized. Representatives of the nation include white Afrikaner, black African, Indian, Cape-Malay and other communities. Moreover, there are also marked differences between urban and rural settlers with those in cities seen as more materialistic and strained but more open-minded (as urban dwellers anywhere generally are) and those in the rural areas as more relaxed, outgoing and conservative,

There are approximately 11 languages spoken in the country and this includes Afrikaans, English, Ndebele, Pedi, Shangaan, Sotho, Tsona, Tswana, Venda, Xhosa and Zulu. Foreign businesses need not be concerned since it is English that is the language of trade.

South Africans are direct in their communication, and, as is often the case with almost all people anywhere, initial relationships are more tactful and restrained but progress to more honest and forthright communication as the relationship develops.

Since South Africa is a country that is entrenched in history, businesses are advised to provide counterparts in South Africa with details of their private and company's history.

South Africans, like most European countries, like their space. Individuals, too, do not generally like being touched.

Topics of conversation include food and sports, of the latter categories, sports such as rugby, football, and cricket are especially liked. Other topics are wines and international travel. Taboo topics are generally race issues, comparison of cities (since South Africans are proud of their particular city), and local politics.

Prime vacation time is from mid-December to mid-January and two weeks around Easter time therefore it is recommended not to establish business meetings around that time. Meetings generally start with some small talk but then move straight to the issue at hand. Oftentimes people digress returning to the topic in a circular fashion.

South Africans -- as do most European nations and distinctive of the West -- like statistics, facts, graphs, and hard data. Business meetings are liberally sprinkled with these. English is the language Franca in the commercial world, although industrialists would make a good impression by translating into Afrikaans (Doing business in South Africa.)

As regards the general business scene, the market is largely dominated by massive corporations with an underdeveloped swath of small and medium businesses. The general business pattern is a vertical hierocracy of many layers striving upwards. However, recent years have seen decentralized decision making with more decisions made at he lower levels.

Although groups have their separate identity, which are fervent and strong, there is nonetheless, some sort of holistic South African identity.

Being a collectivist culture, emphasis is accorded to families and groups.

Other facts, necessary for foreign business professionals, are that South Africa's lengthy and complex legal framework and tax system necessitates assistance of local professionals.

People in businesses are mostly dressed conservatively, and etiquette is formal with personnel turning up on time for meetings and a certain code of conduct applied to.

Business lunches and dinners are common in South Africa, particularly the breakfast lunch, where, although negotiations may not be discussed, business often is a and business cards exchanged (Business)

Small points include the fact that greeting others involves handshaking with direct eye contact, with some women not shaking hands but merely nodding. Small talk is often engaged in and people loath interruption. Since sport is a national occupation, many metaphors are linked to sport.

Gift giving with wrapped gifts is a common part of South African life.

To achieve the best business etiquette, it is important to know the individual's cultural heritage. South African businessmen like to devote themselves to networking and relationship building in order to expand their business. The country respects hard work and perseverance, ironically -- given its part -- it tends to avoid confrontation, prefers face-to-face meetings and insists on appointments. Finally, very few women are seen in senior level positions.

Economic analysis

The country's GDP has recovered from -1.7% in 2009 to 2.8% in 2010 but is still very much below its potential with South Africa bringing in an approximated 4% per year. GDP is expected to grow slowly reaching 4.3% in 20012. Inflation averaged 4.3% in 2010 and is expected to reach as much as 5.3% in 2012.

The national deficit rose to 6.9% in 2010 whilst he central bank's policy rate declined by 6.9% in hat same year. Meanwhile the rate at which South Africa lends cash to the banking system (the repo rate) remains at 5.5% and is slowly rising (South African economic outlook).

At the moment, because of inflation that may lead to stagflation, business confidence according to the South African Chamber of Commerce and Industry (SACCI) plummeted to 98.4 points in September (http://www.southafrica.info/business/economy/bci-071011.htm#ixzz1aJroCH8f) from its original 98.6 points in August. There still seems to be substantial economic risk for the year 2012. According to the SACCI, in fact:

In the present economic conditions, inflation should remain low and may even lead to stagflation. Under the present circumstances, businesses will experience greater strain, as they will not be able to pass on cost escalations… This scenario could easily lead to recessionary conditions in global markets, with dire consequences for already beleaguered economies," (Economy. Business confidence eases, risks remain

(http://www.southafrica.info/business/economy/bci-071011.htm#ixzz1aJsbam3f).

South African trade seems to be effected by international trends and businesses are advised to be cautious and prudent

As regards related factors, China remains South Africa's leading export and import producer as well as its dominant investment partner.

As stated in the section on trade, many other foreign companies seek to base themselves in South Africa especially as means to enter other African countries. In December 2010, South Africa joined the BRICS (Brazil-Russia-India-China-South Africa) expanding their economic opportunities.

In general, the South African economy is ranked as upper middle class by the World Bank. About a fourth of the population is unemployed and approximately the same amount live on less that $i.25 per day.

The four economic centres are Cape Town, Port Elizabeth, Durban, and Pretoria -- Johannesburg but the majority of South Africans are poor, although some major areas have received recent rapid growth.

The South African rand is used for trading and has beecome one of the 15 most used international currencies. According to the Bloomberg Currency Scorecard, the rand competed successfully with the dollar in 2002 and 2005.

As comparison to the ecoonomics of other emerging markets, South Africa stands favorabely in terms of affordability and availability of capital, financial market sophistication, business tax rates and infrastructure, but loses when rated on its cost and availability of labour, education, and the use of technology and innovation. It is also ranked one of the to 10 coutnriues in the world for glaring economic inequalities.