Moving to South Africa a Risk? – A case

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 a 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 hand of a select (white) few, the National Party began reforming its ways.

Mandela’s release thus signaled a first step toward a racially integrated South Africa.

As more widespread reform slowly began to take root 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 confrontations that resulted from it, placed in jeopardy the future of South Africa.

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 favor. For example, it boasts numerous natural resources. South Africa contains 44 percent of the world’s 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 $70 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 re-enter 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 South 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 US is waking up a bit late to this market. This is especially confusing considering the presence of several key advantages that US 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. 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 marketplace that threaten the ability of American companies ever to catch up.

But American companies are not willing to ignore the volatile 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. 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 unpredictable. It is clear for large corporates 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.

After a while stability was attained in South Africa and continues so and all the global leading marketers set up their shop for marketing their products successfully.