Read the following case and answer the questions
that follow :
South Africa has long been shunned by the
global marketplace for its repressive racial practice
of apartheid. During the mid-1980s, economic
sanctions were imposed by numerous countries
throughout the world in protest of apartheid, and
as a result, scores of companies divested
themselves of any and all economic interests in
South Africa. Between 1985 and 1990, 209
companies in the United States sold or closed their
offices and subsidiaries in South Africa. A clear
message had been sent: Apartheid will not be
tolerated.
As company after company pulled out of
South Africa, the sanctions began taking their toll.
The National Party, which had dominated the
government since 1948, began to realize that
South Africa could not survive unless democracy
was embraced. After years of promoting racial
exclusivity and encouraging the concentration of
wealth in the hands of select (white) few, the
National Party began reforming its ways.
One step toward reform was the release of
Nelson Mandela after 27 years of imprisonment.
Mandela was President of the African National
Congress (ANC), the National Party's primary
opposition. The ANC, which fought against the
National Party for nearly half a century, was
founded in 1912 as a liberal lobby for the
democratization of South Africa. First through
legal means, and later through armed
insurrection, the ANC sought to overthrow the
racist government created by the National Party.
Mandela's release thus signaled a first step toward
a racially integrated South Africa.
As more widespread reform slowly began
to take it in South Africa, the governments of
many countries decided to lift the economic
sanctions they had previously imposed. But while
national governments gave the green light to
businesses to reinvest, many local governments
still resisted. In the United States, for example,
then-President Bush lifted the ban on American
investment in South Africa in July 1991.
Nevertheless, approximately 140 state and local
governments continued to impose sanctions
against businesses with holdings in South Africa.
Moreover, while South Africa appeared to be
moving in the direction of democracy, the country
still suffered from unrest and politically-motivated
violence. Political strife, and the frequent, violent
confrontation that resulted from it, placed in
jeopardy the future of South Africa.
Then, in September 1993, a truly momentous
step a unified South Africa took place :
Constitutional negotiators from both the National
Party and the ANC met in Johannesburg to form
the Excellently Control (TEC). The TEC
provided for a power-sharing government that
would run the country until a multiracial election
could be held the following year. South Africa
announced that it would hold the first truly
democratic election in its history on April 27, 1994.
The government elected by that ballot was to
author a new constitution based on the ideals of
democracy, equality, and national unity.
With true reform underway, Mandela made
an appeal to the United Nations : "We believe the
time has come when the international community
should lift all economic sanctions against South
Africa. With this announcement, Mandela
heralded a new beginning for South Africa. "Before
[the announcement], South Africa was
untouchable, asserted William Moses, senior
analyst at Investor Responsibility Research Center
(IRRC). You had to know you were going to make
a hell of a lot of money and have an overwhelming
interest in the market because you had the
anti-apartheid people against you and the state
against you. "Moses predicted that all remaining
local sanctions against South African investment
would be lifted by 1994. "There's no real
resistance", he noted. "It's just a matter of getting
around to it."
With the removal of the social and economic
stigmas, South Africa is once again open for
business. In spite of a deep recession, the country
has much in its favour. For example, it boasts
numerous natural resources. South Africa contains
44 percent of the worlds gold reserves, 69 percent
of its platinum group metals, and 25 percent of its
diamonds. In addition, South Africa has a
well-developed infrastructure of modern
telecommunications, airports, railways and ports,
making it relatively easy for companies to set-up
offices and subsidiaries. Also, the country's GNP
of more than $79 billion, larger than that, of all the
other African countries combined, demonstrates
its purchasing power. And, perhaps most
important, South Africa is geographically
positioned as a potential springboard for
companies looking to expand throughout the
continent.
Acknowledging such benefits, several
European and Asian companies have begun taking
steps to reenter the South African marketplace. In
fact, Japanese and South Korean consumer
electronics marketers have been actively competing
to secure a foothold in South Africa's growing,
$2.4 billion high-technology market. In particular,
the market for such products as televisions and
telephones, denied to blacks during the years of
apartheid, is particularly enormous. Firms such
as Smith Korea's Daewoo and Japan's Sony are
therefore moving quickly to take advantage of the
new demand.
Strangely, however, American firms have
been slow to reenter South Africa. "The U.S. is
waking up a bit late to this market," observed Tony
van der Schuyf, director of the new Products
Laboratory, market research company in
Johannesburg. This is especially confusing
considering the presence of several key advantages
that U.S. Companies in particular would have in
South Africa. "South Africans speak English, they
can afford food, and probably hold American
products in higher esteem than most Americans,"
Moses pointed out. "They know our brands and
they're eager to buy them. South Africa isn't out
of the woods yet, but clearly it's a market that could
be very, very lucrative." While American
companies hesitate, foreign competitors are making
significant inroads into the South African
market-place that threaten the ability of American
companies ever to catch up.
But American companies are not willing to
ignore the volatile political climate that still remains
unsettled. "The potential for an extremely bloody
civil war exists, and until that is addressed, there
are some real reasons many people will be leery,"
commented Douglas Templeman, senior
vice-president of Parsons Environmental Corp.
Parsons, a $1.6 billion engineering and construction
company recognizes the tremendous potential that
lies in moving into a country in desperate need of
new housing and environmental engineering, but
is not willing to accept the accompanying risks.
"The political scene is highly charged and
unpredicatable, Templeman remarked. "It's clear
to us that if and when a stable political solution is
reached that South Africa will be a very, very
attractive market." H.J. Heinz, who has been
carefully tracing South Africa's 40 million
consumers for some time, has also adopted a "wait
and-see" approach and has stated that it will not
invest until South Africa becomes" a stable political
entity with a majority government." Stanley
Works, which pulled out of South Africa in 1986,
is approaching the situation even more cautiously.
"There will be no hurry to move into an area that
poses difficulties for employees and in fact is very
unstable," said Patricia McLean, Stanley's manager
of corporate communications.
Parsons, Heinz, and Stanley works echo the
concerns of many American businesses, but not all.
Companies such as Microsoft, Lotus, Federal
Express, and Pillsbury have already made
significant efforts to reinvest, though at a slower
pace than foreign competitors. According to the
IRRC, a total of 152 U.S. companies had employees
or direct investments in South Africa by April 1994.
For the most part, however, U.S. firms are choosing
to open a sales office "or something small, rather
than going full steam ahead with a factory," said
Moses. "That makes sense almost anywhere, to
open a sales office before you open a factory. But
in South Africa you have the added concern of the
country's stability."
(a) What are the factors influencing companies'
decisions about whether to invest in South
Africa ?
(b) How does investment in South Africa influence
companies' global competitiveness ?
(c) What role does timing play in investing in
South Africa ?
(d) Do you agree that it is almost always better to
open a sales office in a new region before
opening a factory there ? Why ?