South Africa was plagued by the apartheid rule for 46 years but during this rule the country emerged as one of the strongest economy in Africa. Today South Africa has become an investor’s haven with companies from across the globe looking to invest in the country (SAMBP 2009). With the country offering a large number of natural resources to exploit, most business owners are wealthier. This is a major reason for the influx of Indian companies who are investing in this region. Communication, IT, pharmaceuticals, automobile industry among many other industries that Indian companies are investing in South Africa (Wilson 2011).
Below are some prominent Indian companies who have invested in South Africa (Indian high commission South Africa 2013).
Apollo Tyres South Africa Ltd.
Apollo Tyres is a prominent type manufacturer in India and has also set up a tyre manufacturing unit in South Africa. With a limited number of tyre manufacturers in African countries, they are able to produce affordable tyres for the increasing demand in the region . South Africa offers a stable political arena for the company to manufacture and export their tyres to other neighboring African countries. The tyre industry in South Africa recorded a turnover of $151 billion in 2011 and estimates project a growth of between 16-20% each year (SATMFO 2012).
Dr Reddy Laboratories Private Ltd.
Dr Ready entered the South African market back in the 2007 but this was in partnership with local laboratories. It was not till 2010 did the company bought out the other partners to retain full ownership of the company. They produce medicines and export the medicine to other nations in the African continent. According to Espicom a global medical research team, medical supplies constitute to a staggering $273 billion in 2012 and the figures are projected to rise to $349 billion by 2016 (Espicom 2012)
TATA Africa Holdings
Tata has invested in several sectors ranging from the automobile industry to mining and steel production in South Africa. They manufacture in South Africa and export products across the region. In 2012 Tata Africa holding recorded a $500 million turn over and the figure is projected to double in the next 2 year (Mitra 2013).
Challenges to expect when investing in South Africa
Every company that has invested in South Africa intend on tapping in to the regions demand for their products. With the majority of African countries classified as under developed nations, the demand for manufactured products is growing. The middle class spending has grown in South Africa to 34% up from 27% and constantly rising (PF 2013). High demand usually results in higher product prices resulting in bigger profits thus attracting investors.
But for a new investor starting an establishment in these regions may prove to be more challenging than one may have anticipated. Below are some factors which could hamper Indian investors in the region:
Political stability is a major concern for any investor (Walsh 2010). Countries which have unstable economies deter foreign investment since the companies investing want continued productivity. This is a major plus point resulting in most companies investing in South Africa. South Africa has always upheld investor concerns ever since independence by offering a stable political arena for investors (CUTS 2003). With a bass in South Africa the companies are able to produce unhampered and export their products to other African countries which may not offer the same political stability.
Competition is another major concern in the region as more companies invest in South Africa. This is resulting in more competition for new investors. For a new investor it’s important to perform a market study to determine current manufacturing cost as compared to resale’s and demand in the region before investing in any new market or region (Barros 2000).
Human resource problems
Human resource availability is another major factor the foreign investor must take in to consideration. This is because the industries they set up will require skilled professionals who must be available in the country they intend to invest. It’s also important to consider other human resource determiners such as religion, beliefs and tradition linked to local communities (Keillor 2009).
It’s important that the above factors be closely examined and market viability research studies conducted which helps determine the chances of success. Failing to perform this research could lead to investment failure in the region and result in losses and the withdrawal of investors (Mullen 2008).
In the past 2 decades South Africa has experienced many globally recognized companies setting up bases in the country. But this should not restrict the investors just to South Africa. Many other countries have also realized that political stability invites investors who help in development of the region (WIR 2013). This has resulted in many political unstable countries to put their differences apart with the hope of attracting the foreign investor. Africa being under developed tends to be an attractive future market for most companies thus making Africa an important region for most industry leaders.
There are also other markets which can be considered by the investor. Asia and South America also offer some rapidly stabilizing economies which offer political stability. For the investor is it important to weigh all the options available to make sure the investments yield the biggest profits. The whole idea of investment is to make a profit, so locating markets which offer the highest demand and stability should be the main focus of investment (Levy 2008).
- Barros P.P and Cabral L. 2000 competition for foreign direct investment, review of international economics, 8(2), 360-371, 2000.
- CUTS. 2003 Investment Policy in South Africa Performance and Perceptions, Centre for Competition, Investment & Economic Regulation.
- Espicom. 2012 Medical Equipment and Supply Industry: Market Research Reports, Statistics and Analysis, retrieved from http://www.reportlinker.com/ci02252/Medical-Equipment-and-Supply.html on 31-12-2012.
- Indian high commission South Africa. 2013 Indian Business Organizations in South Africa, retrieved from http://www.indiainsouthafrica.com/india-in-south-africa/business-organizations.html on 30-Dec 2013.
- Keillor B. Hauser W and Griffin A. 2009 The relationship between political risk, national culture and foreign direct investment as a market entry strategy: perspectives from U.S. firms, Innovative Marketing, Volume 5, Issue 1.
- Levy D. A, Farnham M.P and Rajan S. 2008 Where Profits Come From: Answering the Critical Question That Few Ever Ask, Published by The Jerome Levy Forecasting Centre, LLC.
- Mitra D. 2013 Tata Africa to double turnover in two years, retrieved from http://www.indiaafricaconnect.in/index.php?param=news/465/in-conversation/116 on 31-12-2013.
- Mullen M. R 2008 Foreign Market Analysis, Irish Marketing Review Volume 20 Number 1, Mercury Publications.
- PF. 2013 Demand skyrockets in African cities for cheap surplus consumer goods, retrieved from http://www.howwemadeitinafrica.com/demand-skyrockets-in-african-cities-for-cheap-surplus-consumer-goods/31075/ on 31-12-2013.
- SAMBP. 2009 Investment and Business Opportunities in South Africa, SA Migration Business Pack.
- SATMF&O. 2012 South Africa Tyre Market Forecast & Opportunities 2017, retrieved from http://www.researchandmarkets.com/reports/2103350/south_africa_tyre_market_forecast_and on31-12-2013.