Africanisation of south African Ratiling Essay

The foreignisation of retail businesses has become a global phenomenon as retailers well-nigh the world expand their operations beyond national b influences. This phenomenon has attracted umpteen academic attention. In Africa, sulfur Africa appears to be more advanced in this regard, with Shoprite at the oral sex of the Africanisation of s give a managementhbound African retailers. A review of Shoprites expanding upon into the continent results in two propositions and nearly challenges that affect this process.The ampler substance of the propositions is further examined by a study of anformer(a)(prenominal) south African retailers expanding into Africa. The review finds that although there atomic number 18 opportunities for retailers in African countries, there be also significant challenges that can waste the opportunities.Most importantly, the chosen mode of entranceway into African countries plays a significant role in the overall multinationalisation process and s hould be a firsthand concern of counsel teams considering making such a move, and it is established that the mode of entry comprises at least five argonas of critical decision making. Key course Africanisation, retailing, international retailing, southmost African retailing, African market places, mode of entry, ICTs, international business.INTRODUCTIONSince 1994, South Africa has moved to become part ofthe African continent, even to the point that it demonstrable1and champi wholenessd an African order of business . This move openedup opportunities for South African businesses at heart thecontinent. In this regard, spark advance South African retailers(including Shoprite, Woolworths, Massmart, Truworths) possess already invested in, and at once operate in diverseAfrican countries. In the past decade, the continent hasalso seen shop centres and malls built in well-nighAfrican cities, some of which atomic number 18 also South Africaninvestments (Miller, 2006). There is qu iet huge potential for all kinds of South African businesses to expand within thecontinent, and there are benefits for all concerned.Already the six primary spheres of the South Africaneconomy mining, retail, construction and manufacturing,financial services, telecommunications, and leisure and*Corresponding author. E-mail naadakoragmail.com.1African agenda in this case refers to former president Mbeki s vision of an African renaissance, and the establishment of the New Partnership for Africas Development (NEPAD).tourism, are in one way or an overbold(prenominal) investing in thecontinent (Daniel et al., 2003). Furthermore, thecompletion of the SEACOMs East African submarinecable and the up coming westerly African cable system thatwill provide fibre optic connection from Africa to the restof the world will open more business opportunities on thecontinent. It is, therefore, not surprising to see anincreasing number of South African retail companiesexpanding into the rest of the con tinent to seek ontogenesisand explore new strategic opportunities.The Shoprite Group operates its have got stores in 15African countries outside South Africa, including Angola,Botswana, Ghana, Lesotho, Madagascar, Mauritius,Mozambique, Namibia, Nigeria, Swaziland, Tanzania,Uganda, Zambia and Zimbabwe (Shoprite, 2008). Thegroups operations have been primarily successful inmost of these countries and in some cases income hasexceeded their projections and expectations. This exerciseance has trigge deprivation numerous growth and involution plans for most of the countries listed above.For example, with the opening of one supermarket inAccra, Ghana (in November, 2007), the groupimmediately started investigating the adventure ofopening five more stores just about the Accra area(Shoprite, 2008). This opus also indicates that theirDakora et al.African operations have produced higher turnover growththan their South African counterparts.However, this is not the case with their operation inIndia where exotic retail bearership is forbidden bygovernment regulations. Shoprite had to operate bymeans of franchising in Mumbai (Shoprite, 2008).Revenues do not match those achieved in Africa,highlighting the mode of entry as a key factor in thesuccessful achievement of retail internationalisation.Yet, even in Africa, it has not all been easy. Due to lackof suitable acquisition targets and alliance partners, andgiven the informal nature of the retail sector in mostAfrican countries, they are obliged to open their ownstores (Games, 2008). The Shoprite one-year report(Shoprite, 2008) indicates that they are currently facingcompetition from new(prenominal) South African retailers who arealso moving into Africa. For example Massmart, alsoexpanding into Africa, will give Shoprite a run for itsmoney in markets for hard faithfuls. Also, as a answer role of their go-it-alone approach toAfricanisation, Shoprite often does not gather enoughmarket k straightwayledge and contacts before entering andestablishing a foothold in these new markets, which initself becomes a problem (Games, 2008).There are also reports of contribute issues haunting thecompany in its Africa operations. Nigeria is reported tohave government-imposed import restrictions on someproducts. This is in a bid to protect the local economy andsuppliers. Miller (2008) points out that the issueconcerning local suppliers is politically controversial forSouth African companies operating in unconnected Africancountries. Although South Africa has moved to be part ofthe continent and has championed an African agenda (asnoted at the start of this paper), there are concerns thatthis commercial occupation might become other form ofcolonisation. As a result, these companies have todemonstrate their support and participation in local causement in those foreign countries or risk beingaccused of exporting Apartheid into Africa (Miller,2008). Of course, the circumstances of each earthmight vary Miller f ound that the Shoprite Group enteredZambia under flourishing conditions that did not attemptto protect local producers and suppliers.Despite the sum up in retail internationalisation inAfrica led by the South African retailers, teensy researchhas been done in this area. This paper is a review basedon a study of annual reports and other publicly availablesources it seeks to develop a foundation for moredetailed case study pass on the phenomenon. The paperdiscusses how the Shoprite Groups expansion into Africahas been achieved, and how it secured its position as thelargest nutriment retailer on the continent. Two propositionsconcerning challenges affecting the decision of entrymode are established, based on the Shoprite study. Theissues that inform these propositions are, however,limited to the results of the Shoprites review, and,therefore, preclude other issues that might be relevant to749the phenomenon but not obvious in this study. Thepropositions are further examined by lo oking at a rangeof other cases of South African retailers expansion intoAfrica.GENERALPERSPECTIVEINTERNATIONALISATIONONRETAILIn youthful years, the world of retailing has seen a dramaticincrease in international activities by retailers around the world (green and Sternquist, 2008 Myers and Alexander,2007 Dawson and Mukoyama, 2006). The phenomenonof retail internationalisation has become an importantfeature of global business. As consumer products andservices become global, and around the whole worldconsumers styles of consumption and attitudesincreasingly become similar, retailers are prompted torespond to this trend. This results in the emergence ofinternational (and in some cases global) retail companies(Federzoli, 2006).As bull Shew ease upr, director of Wal-Mart points out itis absolutely clear the biggest opportunity facing retailers today is internationalisation (McGarriagle, 200812). In exploiting this window of opportunity, the world has seenretail businesses grow into mul tinational corporationscontributing to economies on a worldwide basis. Therising levels of internationalisation among retailbusinesses can be attributed to three factors growth insize, growth in technological sophistication and the necessityto respond to the changing demands and behaviours ofcustomers (Myers and Alexander, 2007).However, retailing is geographically tied, andinternational companies must have a physical presencein the foreign countries concerned in order to conducttheir business (Sternquist, 2007). According to Dawsonand Mukoyama (2006), the internationalisation of retailingis evident in many ways including the sourcing ofproducts for resale, the operation of stores in foreigncountries, the use of foreign fatigue, the bridal offoreign ideas and the use of foreign corking. There hasbeen an increase in all these aspects in terms of volumeand spatial reach, Dawson and Mukoyama indicate. Thisincrease in retail expansion has continued crossways theworld, characterised by large retail ranges, mainly fromthe most developed countries, moving into lessdeveloped ones, and this has attracted some academicattention.However, most research in the area of retailinternationalisation has focused on the developed worldwith gnomish attention being paid to developing economies,especially those in Africa. Zhang and Dodgson(2007336) observe that most research in the field ofinternational business and entrepreneurship concentrateson early internationalisation of firms based in developed countries, especially europium and United States. WhereAfrica is studied, little attention is paid to retailing, as750Afr. J. Bus. Manage.most previous research has always focused onmanufacturing and pure service industries despite therecent increase in retail internationalisation (Park andSternquist, 2008).METHODOLOGYThe review takes into consideration South African retail companies that have expanded their operations beyond their main office region, the Southern African Deve lopment Community (SADC) in a significant way. Pure service retailing is beyond the scope of this paper. Shoprite is the largest food retailer in Africa, and also the pioneering retailer to embark on a continent wide expansion dodging. A review of Shoprites Africanisation process is carried out with the view of gaining some understanding of the phenomenon. Therefore, the propositions and challenges around the issue of modality are limited to what is obvious in the Shoprite study. The significance of these propositions and the bloods between them are further examined by the study of other cases of purposively selected South Africa companies moving into Africa. Since the intention is to understand the phenomenon under study, purposive sampling enhances the potential of understanding(Devers and Frankel, 2000). As indicated earlier, the study has largely been based on annual reports and other publicly available sources, and, therefore, the review took a content analysisapproach. Due to its ability to assess the effects of environmental variables like regulation, socio-economic issues, and location characteristics such as market attractiveness, credibility and likability (Kolbe and Burnett, 1991) in the internationalisation process, content analysis techniques was useful in this study.A REVIEWAFRICAOFSHOPRITESEXPANSIONINTOThe Shoprite Group of companies came into existencewith the acquisition of a supermarket chain in theWestern Cape, in 1979 (Shoprite, 2009a). This expansionstrategy has continued and has helped the expansiondriven company to show its presence across the country, and the group now comprises Shoprite, Checkers,Checkers Hyper, Usave, OK Furniture, OK House andHome, OK Power Express and OK Franchise Division(with a number of stores and brands under it). Thenational growth and expansion strategy of Shoprite, asobserved, has been through mergers and acquisitions,but it modified and extended this strategy when movingabroad.It achieved international exp ansion by opening its ownstores in the foreign countries in which it operates, so that in 2008, out of a total of 984 stores, 100 supermarketswere being operated in 16 countries outside South Africa(Shoprite, 2008). The company claims that theinternational stores operate with the same standards ofsophistication as in the home country, South Africa.Hence, Shoprite now confidently proclaims its name asthe largest food retailer in Africa. The expansion intoAfrican was a bold decision that has continued toinfluence the future of the Shoprite Group to the presentday. However, this could not have been possible withoutclear vision, strategy and the conquer choice of modeof workings. The fol natural depressioning points highlight some of the keyfactors that contributed to Shoprites success in AfricaSuitability of business modelMost of Africas populate cities are home to middle tohigh income earners who yearn for quality of life, andShoprites provision of a world class shoppingenvironment and a wide range of products at arguablyaffordable prices meets their dreams of a better life. Theopening of shopping centres and malls has been afeature of the Shoprite business model, as expressed bythe prexy of the group, C H Wiese in their annualreport (Shoprite, 20088), we have brought a developedcountrys shopping experience to millions of people whohave never been exposed to vocation of this nature. Inessence, this goes beyond the activities of retailing it is actually development, as the b mightily shopping outlets andmalls have become part of a new urban development andmodernity (Miller, 2006).Mode of workingShoprites choice of mode for its expansion programmehas largely been by opening up its own stores in thecountries where it operates. This strategy allows thecompany to have absolute oblige over all its operations,both local and foreign, and managing them from its headoffice in Cape Town. Park and Sternquist (2008) foundthat retail companies embarking on global strateg iesprefer opening branches or establishing wholly-ownedsubsidiaries for their international operations, althoughfranchising has been widely used in this regard. This isbecause the wholly-owned entry mode allows for morecontrol and involvement in the operations of the newestablishment. Opening their own stores also offerspotentially greater returns in terms of profit (Park andSternquist, 2008).However, wholly-owned subsidiaries or own stores areseen as the most expensive mode of internationalisationfor any particular company as it requires more resourcecommitment, including management time and finance(Doole and Lowe, 2004). Doole and Lowe necessitate thatthis mode is used when a retail company is certain thatits products and services will do well in the long-run, in a foreign market of a politically stable country, since itallows the internationalising company to have fullownership and the control necessary to meet its strategicobjectives. Whatever ever the situation, the choice ofe ntry mode is one of the most critical and strategicdecisions the company has to make before attempting tointernationalise (Venter et al., 2007).Empowerment, jobs and trainingDespite Shoprites approach of opening its own storesand shopping centres, it also invested and continues toDakora et al.invest in the human capital of the foreign countries whereit operates. The group employs more than 8 000 localpeople in its stores outside South Africa, some of whomhave been trained to become managers (Shoprite, 2008).Further, local small scale farmers are being supported toupgrade their production standards so as to supply theShoprite stores. It has also been reported that theShoprite Zambian operation is already self-sufficient invegetable supplies, thanks to the engagement with localfarmers.Supply chain efficiency change uncontaminating foods in multiple countries through whollyowned stores could pose a logistical nightmare. But, thanks to Shoprites educate supply chain networkand strateg ically primed(p) distribution centres this hasbeen possible and it has been a success (Shoprite,2008). Another important element here is their ability todevelop the necessary skills, backed by advanced teaching systems, to enable them to source anddeliver products to all their stores from anywhere in theworld, says their 2008 annual report. This elementsummarises the whole essence of retailing deliveringthe right products and/or services to the right customers,at the right place, in the right condition or form, andcertainly at the right price. As indicated by Dawson andMukoyama (2006) the most important function of retailersis to make a range of products available to consumers forpotential purchase.Information systems and technologyInformation systems and technologies not only supportsupply chain management, but also managementprocesses. For the Shoprite Group to manage all itsstores and operations from one head office, it has to havereliable info systems and technology in place. They have invested in the most sophisticated breedingtechnology and systems available to the retail industry,and employ talented people to manage them, accordingto the Chairmans report (Shoprite, 2008). With thisadvancement in information technology, their systemsare able to place up to 490 000 orders per month toreorder products automatically from their existingsuppliers, the report indicates. In his report WhiteyBasson (Chief Executive Officer) indicates that theirinvestment in information technology and infrastructurehas improved efficiencies at all levels of the business,and no doubt the capacity to handle increased supplychain activity in an international context (Shoprite, 2008). DISCUSSIONIt has come to light from the Shoprite review that bothpolitical issues and company-level issues affect South751African retailers in their quest to tap into the Africanmarket in a fulsome way. In an interview with the ClassicFM business programme on 18 February 2009 (Shoprite,2009b), Basson saidSouth Africa has not woken up to the fact thatthey are part of that big global village, and thereare a corporation of laws that need to be changed tomake African traders work better with eachother, in and out, its a hell of a job to actuallyget through the red tape and make tradingeasier. So I feel very beefed-uply about it that theyshould look at that and say listen, as SA becomepart of the African continent and a leading roleplayer, we should actually form somecommitteethat makes the trading easy gettaxes structured properly, so that a truckcan go to and be cleared within an hour goingfrom one border to the next and not stand andwait for four or five geezerhood in between borders Ithink we are just lagging in that process.Moreover, in her research into the conditions of Shopriteworkers in Lusaka (Zambia) and Maputo (Mozambique),Miller (200636) found that across the categories of age, gender, skill and permanent or casual status, workers feltmisused and mistreated by Shopri te management.Millers research reveals that workers complain aboutwages, working conditions, hours, and overtime pay. Dueto high costs of living, the wages earned could notsupport their basic needs, although Shoprites paybettered the legislated minimum wage at the time.In general, the expansion of the Shoprite Group into therest of Africa has shown that modality is important andthe issue of mode is much more than opening whollyowned stores, franchising and others, as it also concernsthe relationship with local producers, suppliers andworkers and other stakeholders. Speaking to Fin24(Shoprite, 2009c), Basson had this to say about goinginto AfricaWe can double our African business if we canget rid of all the red tape and all problems of just getting stores and merchandise out there. So itsreally still very, very tough and there is very littlehelp from anybody, be they manufacturers orgovernment from both sides to make the Africancontinent a global trading area like you have inEurope o r the Americas.The review of the Shoprite story, and its Africanexpansion strategies, demonstrate that the mode of entryinto African markets is of strategic importance. While it is evident that there are still more opportunities forexpansion into African countries, there are significantchallenges, and these challenges revolve around thechoice of entry mode. Therefore the concept of mode andmode differences are important as businesses have to752Afr. J. Bus. Manage.take some important decisions about mode. Theseobservations from the Shoprite study suggest thefollowing propositionsProposition 1 It is not easy getting into Africanmarkets there are significant mode differences whichpresent various challenges.Proposition 2 Components of the modal issues andthe nature of the challenges includea. Support for local economies, producers and suppliers,and labour is criticalb. Efficient supply chain management, and goodinformation systems helpc. Movement of goods across borders can pose logisti calproblemsd. Competition emerges as many South African retailersexpand into the continente. Government interventions are needed to open up thecontinent for trade.The mode is therefore a mix of how these challengesare handled, and this is indicative of the mode choices.Moreover, the challenges regarding support for localproducers and labour, and supply chain management areparticularly important. South African retailers have comeunder exam in recent years for dumping South Africanproducts in African markets, little support for local labour and pushing local companies out of business (Games,2008) an issue Shoprite is said to be working hard on(Shoprite, 2008). Also, although most of the newlyeconomically empowered populations of Africa want tospend their money in shopping mall, there are thosepeople who are driven to be concerned about climatechange because of the globalisation of the issues ofclimate change and the significance of carbon footprintmanagement in running a business.Thi s raises the importance of merchandise rangemanagement, as some consumers might prefer locallyproduced radical products. Therefore, there might be aneed for the re-ranging of product lines of South Africanretailers in their African operations.The wider significance of the propositions established,and the relationships and interdependencies betweenthem can be investigated by a review of other SouthAfrican retail businesses moving in the same direction.OTHER SOUTH AFRICAN RETAILERS EXPANDINGINTO THE REST OF AFRICAthat the company now operates 12 Game stores in 10sub-Saharan African countries outside of South Africaincluding Botswana, Ghana, Malawi, Mauritius,Mozambique, Namibia, Nigeria, Tanzania, Uganda andZambia most of the stores are said to perform better (interms of sales) than their South African counterparts(Massmart, 2008). Other format stores are locatedelsewhere. The report also indicates that the companybuys from local suppliers and also import from differentcountries incl uding South Africa.According to the annual report, the excellentperformance of stores in Africa caught managementsattention, and this prompted us to revise our earlierpolicy to limit our African footprint to one store percountry (with exception of Botswana and Namibia). As aresult there are new stores under development forMalawi, Zambia, Ghana, Nigeria, Angola, and others, asreported.However, in an interview with fin24 the Massmart CEO,Grant Pattison indicated just how serious it is to operate in African markets outside of South Africa, especiallywhen it comes to acquiring property (Massmart, 2009).He said we can work on a property for ten years andexplained how that can hamper their expansion process.Having said that, he also indicated that the more difficult it is to operate, the more opportunity there is for a goodoperator and in the final analysis they do not consider it particularly difficult to operate in foreign African countries (Massmart, 2009).TruworthsTruworths is one o f the leading South African apparelretailers, selling multiple brands of womens, mens,teenagers and childrens fashions and related products(Truworth, 2008). Truworths is an investment holdingcompany with subsidiaries. Like other South Africanretailers, the group is expanding into the continent, andcurrently operates 25 franchised stores in both foreignAfrican countries and in the Middle East (Truworths,2009). Unlike the Shoprite and Massmart Groups,however, Truworths strategy for expansion has beenthrough franchising. The group has a presence in thefollowing African countries beyond the borders of SouthAfrica Botswana, Ghana, Kenya, Lesotho and Tanzaniaunder its multiple brand labels. However, reports of howwell those franchised stores perform are not indicated.Massmart groupWoolworthsMassmart is a wholesaler and retailer of generalmerchandise and other streams of goods. Since 1994 thecompany has expanded its business operation beyondthe borders of South Africa to tap markets in the rest ofthe continent. In its 2008 annual report, it is explainedWoolworths, like Truworths, is one of the major fashionand accessories retailers in South Africa the companyalso operates a supermarket chain and pharmacies. Itoperates nationwide and also offers franchiseopportunities, both in the local market and foreign AfricanDakora et al.countries (Woolworths, 2008). As reported, the companyoperates franchise stores in foreign African countries,including Botswana, Ghana, Kenya, Lesotho, Mauritius,Mozambique, Namibia, Nigeria, Swaziland, Tanzania,Uganda, Zambia and Zimbabwe. The performance of thefranchised foreign operations is, however, not indicated(Woolworths, 2009).RETAIL MARKET OPPORTUNITIES IN AFRICARetail opportunities in Africa are extensive, as someAfrican countries are experiencing strong economicgrowth and are benefiting from political reforms. Thedoing business report of the World Bank (2008)indicates an increasing trend of countries implementingreforms to facilitate c ross-border trade globally, andshows that Africa is at the forefront of this trend. Thereport observes that Ghana, Kenya, Mauritius, Rwandaand Tanzania have all reformed in recent years, and thatAfrican countries such as Botswana, Mozambique andRwanda and Ghana have been able to create positiveand stable governments. The resultant boost in theireconomies has been noticed, and the opportunities areclearly visible (Mahajan and Gunther, 2009).As well as economic expansion, it is worth noting thatthe combined population of African countries is also growth rapidly. With Africa still showing the highest birth rate, its population is projected to reach two billion by2050, despite average life expectancy remaining low(Venter et al., 2007). Within African countries there is a ontogenesis highly-educated labour force, that can make acontribution to companies expanding into the continentthere is also a growing proportion of middle-incomeearners who seek to enjoy the services of thesecompanies. In talking about the continents market size, potentialand opportunities, Mahajan and Gunther (20093) help toput things in spotAfrica has more than 900 million consumers.Despite the challenges, every day they need toeat. They need clean water. They need shelter, enclothe, and medicine. They want cell phones,bicycles, computers, automobiles, and educationfor their children. Businesses are already takethese opportunities in building markets acrossAfrica.As we have noted, prominent among the companiesseizing opportunities in Africa are South African retailers, and this is evident in the rising shopping malls and SouthAfrican retail stores in cities across the Continent (Miller, 2006 Mahajan and Gunther, 2009). Moreover, theincreased communications connectivity and usage inAfrican countries also opens up a lot of opportunities. Theinformation economy report hailed this technology753expansion as the source of the strong wave of innovationthat changed the face of the global economy durin g theth concluding quarter of the 20 century (United Nations, 2007).With the launch of the East African Submarine Internetcable, that connects Eastern and Southern Africancountries to the rest of the world in cheaper and alacritousways, ICTs will continue to be a positive factor.However, Mahajan and Gunther indicate that mostemerging markets have serious problems that cannot beignored by businesses operating within them, and Africahas its own unique situation this issue is discussedunder the next heading.DIFFICULTIESPROCESSINTHEINTERNATIONALISATIONInfrastructure (including transport, electricity, water,sanitation, medicine, and technology) has always been atthe forefront of challenges faced by companies operatingin Africa, but these challenges actually presentopportunities to businesses that can meet them (Mahajanand Gunther, 2009). All the same, it is still difficult andcostly to move goods from one country to another whenthere are poor rail and road networks (EconomistNewspaper, 2008). This poses logistical difficulties forretailers who need to move perishable or fast-movingconsumer goods from warehouses to stores, ingeographically far-flung locations within the continent, asindicated earlier in the discussion of Shoprite.Additionally, cross-border trade is affected by roadblocks, red tape and slow custom clearances at mostborders. As explained in his interview with Fin24(Massmart, 2009), the CEO of Massmart said When wesupply goods into Lagos, it might take 12 weeks on thewater, but it can take 14 weeks to clear. Obviously, this precludes any consideration of the supply of freshproducts.ConclusionAs international retailing becomes a reality in Africa, thecomplexities of the phenomenon, coupled with the uniqueAfrican situation, need academic attention to help elucidate the process. South African retailers havemoved into the continent quite cautiously, and most areachieving growth, in some cases even more than withintheir home operations.This generally posit iveexperience merits more study so that it can beunderstood and used to accelerate the benefits for all,especially the African consumer.This paper has focused on the mode of internationalisation as an important issue that demands the attention of retail managements considering moving intoAfrica. For example, it is interesting that Shoprite andgeneral merchandise retailer, Massmart have opened754Afr. J. Bus. Manage.their own stores, whereas clothing retailers, Truworthsand Woolworths operate via franchising. As a result,while Shoprite and Massmart have full ownership andcontrol over their operations in foreign African countries,they nevertheless have to shoulder the challenges inthose markets as discussed. 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