"Global since Gold": The Globalisation of Conglomerates: Explaining the Experience from South Africa, 1990–2009

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Grietjie Verhoef (2010). "Global since Gold": The Globalisation of Conglomerates: Explaining the Experience from South Africa, 1990–2009. University of Johannesburg.

Type	working paper
Scope	Post-1994 South African economy
Method	mixed
Period studied	1900–2009
Regions	South Africa, Britain/Europe, Africa, Qatar, Nigeria, Mozambique, Asia
Themes	business and state, manufacturing industrial policy, sanctions divestment, transition post apartheid, comparative theory, macro fiscal finance debt, origins segregation
Citation key	verhoef2010

Argument

Verhoef asks why South African conglomerates such as Sasol, SABMiller, Sappi, Barloworld and Anglo American (AAC) internationalised so fast after 1990. She argues that protection, state ownership, business concentration and partial isolation incubated country-specific advantages and firm-specific advantages: management, technology, R&D and market knowledge. These let the firms expand abroad once political and economic restrictions were lifted. The firms went mainly into developed (OECD/UK) markets, not other developing markets, which contradicts Uppsala-type and low-tech EMNC models. She adds that liberalisation, capital access and political-risk management were push factors, and that dual or London listings were a key tool. Sasol is treated as the main case of a state-sheltered champion turned global player. The argument runs from OFDI statistics (SARB, UNCTAD) and company case histories, and it rejects critics who attribute success to discrimination or mining privilege.

Evidence and method

SARB time-series data on outward FDI (Table 1), UNCTAD World Investment Reports and case studies, Ernst & Young M&A reviews, company annual reports and reviews (Sasol, Old Mutual, Sanlam), press sources (Economist, Financial Mail, Business Day), and secondary literature on MNC theory and South African economic history (Feinstein, Jones & Müller, Yudelman, Lumby, Sadie, Klein & Wöcke, Goldstein & Pritchard).

Findings

• Manufacturing growth collapsed after the early 1970s, showing the structural weakness of protected industry. (p. 7)

  The average annual rate of growth of real manufacturing output dropped from 7 percent between 1948 and 1974 to 1.6 percent between 1974 and 1994

• Outward direct equity investment rose from 3.53% of GDP in 1990 to 25.52% in 2008, a rapid globalisation of business. (p. 10)

  Total direct equity investment as a proportion of GDP rose gradually from 3,53 percent in 1990 to 25,52 percent in 2008

• Most OFDI went to developed markets, especially Europe and the OECD, not to developing markets. (p. 11)

  By 2005 European markets were the recipients of 81,24 percent of direct equity investments from South Africa, while the OECD accounted for 87,48 percent.

• The geographic pattern contradicts the Uppsala internationalisation model. (p. 11)

  The geographical direction of EMNCs from South Africa does not comply with the Uppsala model of Johansson and Vahlne (1977)

• Unbundling of conglomerates in the 1990s began with Gencor and opened domestic M&A and then international M&A. (p. 12)

  In South Africa the first major conglomerate unbundling exercise was the unbundling of Gencor by Sankorp in 1993

• SABMiller illustrates the 'springboard' route from protected home market to global brewer, ending as effectively non-South African. (p. 13)

  By 2008 SABMiller was no longer a South African company, and earned the bulk of its income from outside South Africa

• AAC's move abroad is linked to the post-1990 political shift and the strength of unions; Verhoef cites Mbeki's view that internationalisation was 'political risk management'. (p. 14)

  As soon as political power shifted in South Africa, AAC started to seek less threatening and more stable markets, with less exposure to the militant labour unions

• South African banks and financial firms internationalised only modestly and remained domestically rooted. (p. 16)

  Their foreign loans and advances rose from 4,3 percent of total loans and advances in 1994 to 11.8 percent in 2008.

• The 1980s Sasol 2 and 3 plants required very large capital outlays relative to GDP, which prompted partial privatisation. (p. 18)

  The capital costs of Sasol 2 was R2.5 billion and of Sasol 3 R3.3 billion

• Sasol's 2000 Condea acquisition made it a global chemicals player. (p. 26)

  Condea was the largest global producer of raw materials and intermediaries for the detergent industry and had seventeen production facilities in the USA, Netherlands, Germany and Italy.

• Isolation did not produce stagnation; it incubated big business. (p. 28)

  Isolation suppressed competition, but it did not in South Africa lead to stagnation and backwardness.

• Conglomerates built capabilities in the protected home market that let them enter global markets once restrictions were lifted. (p. 30)

  Conglomerates were successful in developing a critical mass in the protected isolated domestic market, which developed management capabilities