1.1. INTRODUCTION
1.1.1. Introduction and Background
The international competitiveness of firms is increasingly important in the modern globalised world. No firms can hide from the impact of globalisation and this means good understanding and incorporation of key theories of international competition.
Even with many palavers and disputes on a long on-going the subject, this study analyses the emerging questions within the understudied area of International
Competitiveness in relation of African multinational companies (MNCs), also known as the “Lions” (Boston Consulting Group, 2010) especially acting in the financial sector. In spite of a connection between various concepts, the theories are used to develop a conceptual framework in order to examine in detail the phenomenon associated which is burgeoning in the African financial economy. The paper aims to provide, a starting framework on new development paths and strategies related to MNCs based in developing countries and specifically in Africa.
The financial industry plays a central role in encouraging and facilitating trade and investment. This industry is therefore subject not only to economic but also to cultural and political pressures. As of 2010 (IMF, 2009) the gross world product (GWP) was about US$ 74.00 trillion and developing countries were estimated to be growing by 7 percent in 2010. While for the same period, the growth of Africa is estimated by about 4.9 percent. Meanwhile, Africa representing 14 percent of the world’s population has a GWP of just US $ 2.200 trillion which is just around 3 percent of the world total. It used to be 6 percent before 1980 (African Economic Outlook (AEO), 2011).
More and more, it is now accepted that without a financial industry a country has less chance to develop economically. However, the general perception of Africa, its economy and its development has, long directed its exotic side of safari, forests and wild animals (Hale, 2011) , catastrophes, multiple and endless tribal wars, long term dictators’ reigns, underdevelopment, pandemic diseases, scarcity of food, etc.(Fund,2011; Prunier,2011; Everatt,2011). Alternatively attention has been narrowly focussed on the areas where the West has spent 0.7 percent of its GDP in the development of this marginalised continent (Baskaran, 2011).
According to various publications, the progression of the world economy will be around 6 percent per year; a fast growth mainly attributed to the importance of
international trade, which has pushed pushed by the development of new strategies such as the integration of dynamic blocs in trade and currency; opening to a larger scale than only the national ones. In addition the revolution of the net economy had pushed the boundaries of innovation and the development of new technologies and improvement of telecommunications, contributing to break down some ancestral barriers, (Esteve-Perez and Gil-Pareja, 2011). Therefore, the distance of international trade was reduced; creating an open door for African MNCs to extend their role in global economy. The MNCs are involved in the international competitiveness process for many kind of reasons and they use different advantages in different parts of the world, (Cattaneo et Al., 2010). But Africa is often left out of consideration, despite the success transformation of the ASEAN Economies which, might be useful to predict potential growth in African MNCs. Similarly, the abundant natural resources and a population near to a billion can be sources in generating competitiveness in the close or far future (Crick et al 2011). Nevertheless, change has commenced and some companies are taking the challenge of international competitiveness, according to the
Boston Consulting Group (BGC) report (2010): “The 40 African Challengers”.
1.1.1. Rationale
In a landscape of confusion, there might be questions regarding the benefits of study of African businesses. It must be said, however that the exploitation of African resources by companies from the “trans-Atlantic trade(1)” and nowadays in the oil industry contributed to their success. They therefore have an obligation to support the maintenance and development of knowledge diversity of domestics firms based in developing countries, therefore, all the regions must be covered. Many sciences, like anthropology, sociology, biology, etc… have been reported on various domains in relation to Africa; therefore economics and business prospective should future opportunities and knowledge diffusion. Today, knowledge is a key factor of success for foreign firms in the local competition and domestic firms based on it are developing models based on their capabilities which will enable them to easily cross the borders.
Usually focussed in the western world and latterly in Asia and South America, the BCG’s article released on June 2010, marked the starting point of a very serious area of research. It pointed to a new phenomenon emerging in Africa and despite the lack of studies in this area; this research aims to modestly fulfil the implicit suggestion of (Verbeke, 2003) to actively find new patterns by keeping the field of international business updated and relevant.
The literature on international competitiveness in business school of around the world was limited and embryonic before Porter; who has developed many frameworks. So therefore, the theory itself constitutes the main construction of this study, which is linked to many other theories in relation to the MNC, because “Nevertheless various scholars lend support to either the convergence or the divergence hypothesis, depending on whether they believe that the distinctive differences between MNCs based in developed and developing countries will lessen in importance or disappear entirely over the time, in a way that will enable the extant theories of the MNC…”(Tolentino,2007). This research tends to focus on the international competitiveness of domestic firms in the financial industry, especially in Africa. Based on the “40 lions” and exposing two different views:
– The western point of view: In term of research interest and for foreign firms operating in those domestic markets the acknowledgement of the new entrants
and perhaps the redefinition of their strategies for better results.
– The African point of view: Also to open this part of the world into the international business literature and for domestic firms further recommendations in
their strategy development.
Therefore, the study will have four objectives, as described below:
a. This objective will involve:
i. Identifying the “African Lions” and highlighting their driving forces,
ii. Selecting those within the financial sector and correlating the driving forces,
iii. Focusing in South Africa and Togo by analysing the benefits of driving forces already identified.
b. The second objective will be:
i. Exploring the financial sector in South Africa,
ii. Exploring the financial sector in Togo.
iii. Conducting in-depth analysis of the two different models one in South Africa and the other in Togo so as to have a holistic view on the subject.
iv. Assessing critically practices related to their growth and internationalisation.
c. The third objective will then involve:
i. Generating explanations
ii. Hopefully identifying new views on the subject
iii. Concluding by maybe drawing an innovative view of competitiveness of
domestics firms within developing countries in the financial industry, especially in Africa.
d. And the final objective will be to formulate recommendations when needed.
1.1.2. Outlines of the study
Using a methodological framework of study on African domestic firms within financial industry; the focus of this study will be on South Africa with Standard Bank and Ecobank for Togo, because of the increasing weight taken by these African domestic businesses at the regional and international level. The organisation of this dissertation is divided into seven chapters and organised as follows:
Chapter one introduces the study, provides the background and clarifies its purpose, aims and objectives. It gives a greater picture on the impact of domestic firms in the financial industry in Africa, including countries and companies choice. It also justifies the methodology of the research adopted.
Chapter two is the literature review and discusses the international competitiveness of firms, based on the theory of competitive advantage associated to knowledge based view and market imperfections to explain how domestic firms in Africa can flourish and become internationally competitive.
The third chapter attempts by a deep analysis of Standard Bank a South African MNC. Firstly, it analyses the evolution of the firm and its place in the financial. Then it examines how it competes internationally and why?
Chapter four, like the previous one, attempts a deep analysis of Ecobank in Togo. Firstly, it analyses the evolution of the MNC in the context of the financial sector in Togo. Further examines how does it compete internationally and why?
The fifth chapter reports on the findings from the research. In the first place, the results from the literature review and from the BCG Report will be discussed. Next, findings collected from the case study are compared and contrasted with the empirical theories. Moreover it describes how each of the banks attains and maintains their international competitiveness? This will be done by contrasting the two banks’development approaches and their strategies.
Chapter six concludes the study by revisiting the aim and objectives of this research and then bringing to light other various questions raised during the process. It takes up the findings and develops recommendations where possible. This chapter also illustrates the limitations of the work and clarifies its contribution.
The seventh chapter contains an alphabetical listing of sources used for this work. It also lists the appendices enabling the completion of this research.
1.2. RESEARCH METHODS
1.2.1. Introduction
Qualitative research is the main method conducted for this dissertation with the objective stated by Yin (2009: 8). However elements of quantitative method are used to corroborate and to strengthen the analysis, which has the objective to fulfil what, was said by Creswell (1994: 159), therefore to “interact closely with those they study and minimise the distance between themselves in order to gather detailed and subjective information”. This qualitative research will be directed using a case study methodology, to bring a deep and strong understanding of the complex issue posed by the subject. Robert K. Yin defines the case study as “an empirical inquiry that investigates a contemporary phenomenon within its real-life context; when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used” (Yin, 2003: 13). A case study is the most common methodology used by students (Davis, 2011). But for the clarification of what will be carried out, the definition of Cohen and Manion (1995: 106) is followed to “probe deeply and analyse intensively”. The set of boundaries will be made to compartmentalise the research on a comparative study of the international competitiveness of domestic firms in developing countries located in Africa within the financial industry with reference to two different companies, Ecobank and Standard Bank.
The subject is both an on-going debate, wherein all the components are not discovered or discussed yet, and is contemporary because BCG report was just released on 2010. This pushes ethically and philosophically the pursuit of a challenging and complex subject area. Based on comparisons, this study uses a descriptive type of case study for an intense look to have an in-depth knowledge and to find some explanations on this new phenomenon of internationalisation of domestics firms situated in developing countries especially in Africa. Also, it will tend to use the explanatory type of case study to develop a better and greater understanding of causal-relationships. The data collection due to the limited time available is a document analysis, using multiple sources of data from around the world in many different languages including French and English. The data involves reports, tabular material, surveys, narrative investigator reflections, beginning of analyses, unpublished papers; in an inductive approach (Eisenhardt, 1989).
A particular interest of this work will be to compare what was discovered in the literature review which is conducted in the random systematic following the Yin 1994 Protocol. The systematic review will enable replication of findings by further researchers following the same route of analysis. It was chosen for its rigour in the selection process, its credibility within research community and its focus cover the initial objective which is to analyse international competitiveness of African MNCs.
Also, it allows adaptability for strategy makers to refine and adapt their actions in developing countries and to develop better understanding of this new phenomenon in two different ways, which will act in the reduction of bias. The design will be a single case study to refine theory (Stake, 1994); instrumental and embedded using two different units for comparison: ECOBANK in Togo and STANDARD BANK in South Africa, (Yin, 2009: 46). The data analysis part follows the four strategies explained by (Yin, 2009).
In the development of this study, the author will explore multiple avenues enabling recommendations and criticisms which will be addressed when appropriate. Also the author is well aware that the generalisation from one case study is fairly difficult, but expects that many other researches will be carried out on the precise area, expanding logically, in first instance the knowledge on African domestic firms in international competition, for a richer database correcting possible generalisation. This is in tune with (Bell, 2005: 11) addressing some comments on the case study which shed light on an area that generalisation is not always possible. Nonetheless, if researchers can only study subjects which can be generalised, no new insights will be created in some areas where all the components are not yet revealed. Also, (Yin 2003:10) admitted that the generalisation is possible after many experiments, conviction shared by the author.
In relation to validity, it should be highlighted that “Most people feel that they can prepare a case study, and nearly all of us believe we can understand one. Since neither view is well founded, the case study receives a good deal of approbation it does not deserve” (Hoaglin et al., 1982: 134); so it is a very demanding methodology which requires lot of time. In connection to the subject, since the nations are trading, Adam Smith developed the absolute advantage law based on specialisation on what countries are good at, and it was already about labour-abundance-countries, at the heart of this study. And with much else recently, the BCG report continues a study started long time ago, making the subject totally valid to be analysed.
1.2.2. Data Collection
This study will aim to “understand individuals” perceptions of the subject (Bell, 2005:6), and will involve an in-depth analysis rather than a statistical perspective of the subject.
The ambition is to understand what is happening, for which reasons and how it is perceived in Africa – with a focus in the financial industry in two different countries. It is also to find explanations for questions which are posed, thereby demanding probing and insight. Some part of the study will use techniques related to quantitative data collection, for example exploring the number of domestic firms in the financial industry who are able to compete internationally, according the modes of selection develop by the BCG. Due to time limitations, data collection will also be based on a document analysis using multiple sources from data centres around the world in different languages including French and English. Such sources will include: reports, tabular material, survey data, narrative investigator reflections, analysis etc; following an inductive approach as stated by (Eisenhardt, 1989). Other sources of data will include companies’ websites, which contain the chosen companies’ profile, including their vision, mission, business units, their global presence and their annual reports. Other published articles and surveys concerning all or part of the subject are also considered and referenced to support several arguments.
Data analysis will reflecti the aim and objectives of the study, by focusing only on issues related to the topic, enabling the assessment of the international competitiveness of African domestic firms, their challenges and their actions within globalisation. It will examine, categorise, test and combine evidence to develop conclusions and relate each case back to the theory thus testing its present validity or for this particular region.
1.2.3. Site and Sample Selection
The BCG report will be used as predominant source of data as it enables access to a large amount of data, more than could be collected by one person with a limited budget and time scale. In addition, the data are targeted and related to the main subject but does not go in the area uncovered by this dissertation. The BCG team has proved its reliability on the subject and has built a strong reputation over the world. So work with a large predefined sample is more than convenient for the qualitative aspect of the subject. Also as stated above, two different points of view can be related so as to have a greater interest both in Africa and in the west where companies are starting to lose speed in this continent where probably everything was begun. Furthermore, South Africa was chosen because it is probably the most developed and diverse country in Africa, according to BCG all the global players are South African and the top five of MNCs in the financial industry in Africa are coming from South Africa. Togo was selected because it is a small and poor country where nobody would have expected to see the development of an unique case. (Appendices 1 & 4)
1.2.4. Data Analysis
Therefore, the analysis is realised by connecting concepts found during literature review with the empirical data (Coffey and Atkinson, 1996) thus helping to have a better understanding on the topic in general. And as defined the systematic review is: “…explicitly formulated, reproducible, and up-to-date summaries of the effects…” (Egger et al., 2001: 4) to bring focus on what the study is trying to analyse and to identify relevant evidence. Related seminars, presentations, lectures and theories in relation to international business will also be reviewed by following the four strategies explained by (Yin, 2009). This will all be adapted and presented as follows:
– An introduction, which will be a general introduction, defining the debate, followed by an exposition of the purpose and objectives of the case study. Next it will explain the topics covered and will describe the parts covered in each chapter.
– Also for the second, third and the fourth chapters, there will be a further introduction and purpose definition at the starting point which will explain how
data will be collected in term of sources and accessibility.
– Many questions will be asked to find causal links and explain what is happening, how and why. Much evidence will be provided, coming from multiple sources. And each section will attempt to answer particular questions as per its purpose Chapters 2 and 6 have the opportunity to open and close the debate by asking questions related to the entire case and to try to find appropriate responses e.g.: how do domestic firms in developing countries within the financial industry
develop an advantage enabling them to challenge well-established and empirical foreign firms and compete internationally?
In the next chapter, the literature review will develop main questions surrounding the topic and will thus enable a greater comprehension of the subject. It will frame the analysis of each firm in the context of the theories of competitive advantage alongside of which the resources based view in the axe of knowledge by which firms might achieve a sustainable international competitiveness .
1 The Transatlantic Slave Trade consisted of three journeys: 1. The outward passage from Europe to Africa carrying manufactured goods. 2. The middle passage from Africa to the Americas or the Caribbean carrying African captives and other ‘commodities’. 3. The homeward passage carrying sugar, tobacco, rum, rice, cotton and other goods back to Europe.
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