QUESTION TWO [25] Case Study: South Africa's big companies have spread their wings abroad At the Manda Hill and Arcades shopping centres in Lusaka, it is easy to forget that you are in Zambia's capital. For those travelling north from South Africa, the scene is eerily familiar: they can shop at the Shoprite or Woolworths supermarkets and go for a bite to eat at Debonair Pizza. MTN pre-paid mobile-phone cards are for sale at traffic lights and there is a choice of films at the Ster-Kinekor cinema or on the M-Net satellite-television channel. After the lifting of international sanctions and the relaxation of capital controls, South African companies quickly caught up with the rest of the world. This changed the business environment not just within the country itself, but throughout the region, and partly explains why South Africa was invited to this week's G8 summit along with emerging heavyweights China, India, Brazil and Mexico. South Africa now boasts many successful multinationals. Their achievements vividly illustrate how firms from developing countries can prosper abroad, especially in emerging markets, which they understand and can sometimes navigate better than their rich-world competitors. The Anglo American Corporation and De Beers are among the top mining companies in the world. SABMiller has become a global brewing giant. Sappi is big in the world of paper, and MTN has become a household name in many African countries. Dimension Data (Didata), which provides computer services, operates in over 30 countries. Old MutualSouth Africa's biggest financial firmbought Sweden's oldest insurance company last year. And Sasol, an energy and chemicals company, operates in over 20 countries worldwide. But South African firms had to remake themselves first. Their inability to invest abroad prompted local companies to invest in each other. As a result, the business landscape was dominated by conglomerates enmeshed in complicated crossholdings. Besides mining, for example, Anglo American was involved in beer, banking, insurance and media. Similarly, South African Breweries (SAB)which counted Anglo American among its shareholdershad interests in hotels and retail chains, and also manufactured shoes, furniture, textiles and matches. For computer firms like Didata, set up in 1983, sanctions meant that the technology they needed, much of which originated in America, was largely out of reach. This obliged the company to develop its own systems and become self-sufficient. "We had to do it all ourselves," recalls Jeremy Ord, Didata's chairman. Isolation also shielded South Africa from competition, which in some industries helped to foster the creation of national champions. Once they were able to turn their gaze beyond their own borders, South Africa's business started selling their non-core assets. From inward-looking, tentacled conglomerates, many transformed themselves into global firms focused on particular markets. Although big companies still dominate South Africa's business landscape, their grip has loosened considerably and international exposure has transformed their corporate cultures. To compensate for their late arrival on the international scene, South African businesses went on a shopping spree. SAB was quick to move. The collapse of the Soviet Union meant that many state-owned breweries in eastern Europe and in Africa were up for grabs. In 1993 the company bought a stake in Tanzania's loss-making national brewer and invested in Hungary. By 2000 it had moved into another five African countries, as well as Poland, Romania, Slovakia, Russia and the Czech Republic. "European brewers did not seem to be moving quickly enough," says Malcolm Wyman, the group's chief financial officer. This meant SAB was the first to establish strong positions in regions that other big brewers neglected. It moved into China in 1994 and acquired Miller, an American brewer, in 2002. SABMilleras the company is now knownbecame the second-largest brewer in South America when it bought Bavaria, a big drinks firm based in Colombia, last year. Access to cheaper capitaland a lot of ithas been essential. The gradual lifting of capital controls and the ability to list on the London Stock Exchange both boosted the foreign expansion of South African firms. In the late 1990s the new democratic government allowed several companiesincluding Anglo American, SABMiller, Old Mutual and Didatato move their primary listings to London. Mr. Wyman says SABMiller's big acquisitions over the past few years would not have been possible without the LSE listing. Mr. Ord points out that listing in London, with the corporategovernance and transparency requirements this entails, helps to establish credibility with foreign clients. Many South African companies start by spreading their wings close to home. Banks, retail chains and mobile-phone companies have been particularly active investors in the rest of Africa. Standard Bank and ABSA, two of the largest South African banks, are very bullish about the region. Didata has been active in over 20 countries in Africaor "emerging Africa", as it calls itoften providing infrastructure for MTN's mobile networks. South Africa is now one of the top investors in sub-Saharan Africa and has helped to spur economic development. New mines mean more exports and foreign exchange. Millions of Africans have access to phones, often for the first time, thanks to Vodacom and MTN and Cell C. In Uganda and Zambia SABMiller is working with local farmers to produce sorghum for use in brewing. The firm also grooms local entrepreneurs to distribute its beer and soft drinks. South African investors provide formal employment where jobs are scarce and beef up tax revenues in economies dominated by the informal sector. The picture is not all rosy. South Africa is sometimes seen as a neo-imperialist hegemon. Supermarkets, for example, are accused of pushing South African products and putting traders and small farmers out of business. But roughly 85% of foreign investment by South African-based firms is in Europe and North America. The transformation of South Africa's local champions is part of a broader emergence of new multinationals. Think of Hutchison Whampoa of Hong Kong, Tata of India, Mexico's Cemex, or Malaysia's Petronas. Investment by such firms is becoming a big source of capital for poor countries: half of foreign telecoms investments in Africa came from other developing countries, according to the OECD. Although such multinationals sometimes find it harder to invest outside their home regions, their strength lies in their ability to straddle the rich and poor worlds. Source: http://www.economist.com/node/7167171

Questions 2.1 Globalization represents the increasing integration of the world economy. Using the case study above, discuss what drivers of globalization these South African companies used for their expansion into global markets. (10)

2.2. In economics, "competition" is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketingmix: price, product, distribution, and promotion. Explain the importance of global operations for South African companies. (15)