Internationalizing to South Africa

The cost, Benefit, Risk AnalysisZack Ramos, Gavin Gunawardena, & Tyler Ash

ContentsExternal Environment: Land, Government, Economy.................................................................................2

History.....................................................................................................................................................2

Government.............................................................................................................................................4

Political Risk.......................................................................................................................................5

Government and Business Corruption.................................................................................................5

Economic Structure.................................................................................................................................6

Economic Freedom..............................................................................................................................6

Privatization Efforts.............................................................................................................................6

Taxes...................................................................................................................................................6

GDP Analysis......................................................................................................................................7

Social Welfare Programs and Employment/ Unemployment...............................................................7

Union Problems...................................................................................................................................9

Trade Partners/ Agreements...............................................................................................................10

Foreign/Domestic Incentives to Invest...............................................................................................10

External Environment................................................................................................................................12

Social structure......................................................................................................................................12

Standard of living..................................................................................................................................13

Diet and Family Duties..........................................................................................................................14

Ethnic divisions.....................................................................................................................................15

Religion and Language..........................................................................................................................16

Literacy Rate and Education..................................................................................................................17

Unique facts and features of this country’s culture................................................................................18

Hofstede’s Research and Dimensions....................................................................................................18

Internal Environment.................................................................................................................................19

Organizational Characteristics...............................................................................................................20

Motivation and Incentive Programs.......................................................................................................22

Leadership.............................................................................................................................................25

Decision-Making...................................................................................................................................27

Communication.....................................................................................................................................27

Managerial Profile.................................................................................................................................28

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Women in Management.........................................................................................................................29

Unique Features of South Africa’s Management System......................................................................30

Conclusions and Recommendations..........................................................................................................31

Culture Comparison...............................................................................................................................31

Management Comparison......................................................................................................................31

Cost-Benefit-Risk Analysis...................................................................................................................33

Conclusion.............................................................................................................................................33

Bibliography..............................................................................................................................................35

Appendix...................................................................................................................................................39

Appendix A: Government Structure in South Africa.........................................................................39

Appendix B: Political Risk Assessments...........................................................................................39

Appendix C: Annual Trend of Economic Freedom in South Africa..................................................40

Appendix D: GDP per Capita vs. African Nations and U.S...............................................................41

Appendix E: GDP by Sector..............................................................................................................41

Appendix F: Murder and Rape per 100,000 vs. U.S..........................................................................41

Appendix G: Hofestede’s Dimensions vs. U.S..................................................................................42

Appendix H: Analysis of Organization Variables..............................................................................43

Appendix I: Organizational Culture Chart Comparison.....................................................................43

Appendix J: Leadership Styles Based on Race..................................................................................44

Appendix K: CBRA...........................................................................................................................45

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External Environment: Land, Government, Economy

History

South Africa has been inhabited by humans since man’s inception, which was over 100,000

years ago. This is verified by the incredible findings at the Cradle of Humankind. This area of 12

archeological sites within 180 sq. miles has been the home to over 900 hominid discoveries.

Many hominids (humans and the early ancestors of humans) fell into hidden holes and/or

predators such as eagles and large cats have dragged hominid fossils into limestone caves to

create amazing specimens of the hominids that lived in the region up to 3.5 million years ago.

(Smithsonian Media, 2012)

Dutch traders landed in 1652 and founded Cape Town. This was used as a stopping point

between Europe and the Indies. After the discovery of diamonds (1867) and the discovery of

gold (1886), that native population, which has been there since man, began to be subjugated by

whites. This began to increase substantially. Apartheid is the term to describe the separation of

individuals by race. It prohibited Africans from holding office and was a part of everyday life.

This created segregated public facilities such as bathrooms, park-benches, and schools. Blacks

received a terrible quality of education compared to whites during this period. This period ending

in 1994 with the first multiracial election whereas Nelson Mandela, their first black president,

was elected, and the African National Conference came into power which has controlled the

government ever since by popular vote. (Central Inteligience Agency, 2013).

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The country’s 48 million inhabitants have since been ravaged by HIV/AIDS with a 17.8%

infection rate ranking 4th in the world and 1st in deaths. South Africa has been attributed to much

social unrest due to the broad gap between the rich and poor, below poverty living conditions in

most areas, and cultural clashes that have predated Apartheid.

Government

It is difficult to talk about South African government without referring to the African National

Party. (ANP) Currently the ANP holds 264/400 seats in the National Assembly, and presidential

elections have been in ANP power ever since they were unbanned in 1990. Their agenda

includes equal rights for all nationalities, the people sharing in the country’s wealth, and all

enjoying equal human rights. This creates a socialist view of government for the majority of the

population.

This is a positive to foreign investors because it means that governments will not be “stingy”

when offering foreign incentives, discussed later.

The government is a three branch institution similar to the United States with Executive,

Legislative, and Judicial Authority, noted in Appendix A. Particular problems with this structure

is the overwhelming power of the ANP in the legislative branch. This has potential to radically

influence policies, but their strategy seems to be conservative and economically growth-based.

Judicial Authority has been under fire lately for corruption. Recent studies in Cape Town, South

Africa show that almost half (47%) of South Africans who came into contact with government

officials paid a bribe to them in the past year. The global average is 31%. (Sapa, 2013)

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In a country that has some of the most staggering crime statistics in the world, this is a downside

for internationalizing for the sake of the safety of employees. Murder rates (2012/2013) were up

0.6%, but the number of attempted murders rose by 6.5%, violent house robberies by 3.6% and

carjackings by 5.4%. Additionally, drug-related crime rose by 13.5% and truck hijackings by

nearly 15%. (Dixon, 2013)

Political Risk

Low/Medium

The government seems reasonably stable with short term, medium/ long term and special

transactions all falling by 42%, as shown in Appendix B. (Delcredere Ducroire, 2013)

These results suggest there is identifiable risk, but it is still a strong candidate for

internationalism.

Government and Business Corruption

In corruption, South Africa places 69 out of 176 countries, with a score of 43 / 100 (0 being

highly corrupt). (Transparency International, 2013) Government corruption is definitely a risk

factor there. Bribery is common and must be addressed corporately if business is to be

conducted. Businesses must have a followed and enforced Code of Ethics, to battle corruption

and especially bribery.

Bribery scores for South Africa are 7.6 / 10 (Transparency International, 2013) indicating that

businesses probably will encounter bribery opportunities while internationalizing in South

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Africa. If a company is caught in bribery it will have negative and serious implications onto the

trust factors of stakeholders and investors.

Economic Structure

This section will discuss the economic structure of South Africa in order to determine, which

variables favor internationalism or not, and which variables have give-and-take properties. The

economy is ranked as the 26rd largest economy in the world, as opposed to 35th in 2002. (BBC,

2013)

Economic Freedom

With a score of 61.8 on the Economic Freedom index. We can analyze different aspects that help

this number and hurt it. This number has been shrinking over the last four years as seen in

Appendix C

Privatization Efforts

Privatization efforts have created the free enterprise growth we see in South Africa, today.

Democracy and fiscal stability have led to huge expansions in the scope of privatization.

State-run industries are common in South Africa, which denies multiple industries from

penetrating there. Industries such as petroleum, communication, logistics, some forestry, air

travel, and electricity generation are generally state-run, which eliminates any prospects for

internationalism in these sectors.

Taxes

The top income tax rate is 40 percent, and the top corporate tax rate is 28 percent. Other taxes

include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 23.8

percent of total domestic income. Government spending has increased to a level equivalent to 32

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percent of GDP, and the budget balance has fallen into deficit, prompting a rate downgrade by

some agencies. Public debt is about 40 percent of GDP (Heriage Foundation, 2013).

The corporate tax rates are comparable to the United States (25%), making it an easier transition.

This rate also has dropped from 34.55%, in 2012.

GDP Analysis

GDP in South Africa is 592 billion; ranked 26th in the world. Their GDP real growth rate is

around 2.5%. This is partly because of economic slowdown in 2009, but has since bounced back.

This is far less than the levels of 5% and 5.5% experienced from 2005 to 2007. (The Banker,

2012) South Africa is the most sophisticated market in Africa; meaning is it less explosive in

growth compared to other nations. Per capita GDP is $11,600, meaning that many luxury items

will be a niche market there. Compared to the surrounding economies it is decent, as shown in

Appendix D. Because of government assistance programs there is room for market growth in

South Africa.

There has been a sharp decline in the amount of GDP going to agriculture in the past year. The

service industry attributes to most of the GDP by sector, located in Appendix E. This exhibits a

general shift to a more globalized economy similar to the United States. It also means that an

increase in skilled labor as opposed to unskilled is a necessity for larger values of growth in

GDP.

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Social Welfare Programs and Employment/ Unemployment

Unemployment rates are at staggering numbers (22.7%). (Central Inteligience Agency, 2013)

This has resulted partly from people benefiting from social welfare programs and abuse of

government grants.

The South African welfare programs have been dramatically increasing its beneficiaries from 3

million in April 1997 to 13 million in April 2009. Using 3.5 percent of GDP on welfare is

making South Africa the highest welfare spender in the world. (Potts, 2011)

Thirty-seven percent of social assistance expenditure is a program available to men older than 65

and women older than 60. Using an algorithm, they are evaluated and allowed a monthly check.

Research suggests that pension recipients are often the “only contributors to income in

households and thus, support the entire family on their SOAP (State Old Age Pension Grant)”.

This grant allows the older population to stay out of poverty; overall helping economic strategy.

It is noted that many people will benefit and refuse to work just because they are indirectly

supported. (Potts, 2011)

There is only one grant handed by the government that affects the working age population, which

is the Disability Grant. Most of the beneficiaries receive the grant at around 40 years of age. It is

a grant that will fund people that cannot work due to a disability. This eliminates incentives to

work because it creates dependency on the grant, and most people will make more with the grant

than joining the labor force. Only 6.6% of people with this grant noted they would accept a job if

offered one (Potts, 2011).

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The second highest expenditure for the welfare system is the Child Support Grant. This grant

results in 31% of social assistance expenditures. It gives roughly 31.93 USD to parents per child.

This assistance creates a correlation between school attendance and households receiving the

grant. (Potts, 2011)

In Rebecca Potts’ report, cited above, she brings up certain issues like the dependency of the

poor on the welfare programs and the misuse of welfare program money. Parts of her

recommendations were that certain cash-welfare aspects should be replaced with non-cash

transactions such as food stamps in order to battle corruption and misuses of the government’s

money. Some of the money given by governments weakens the ability to create incentives to

work. Ultimately, this will create a hindering environment for economies to grow, but placing

free money into citizens pockets, especially the elderly, can lead to the purchase of more than

average goods.

Union Problems

South Africa has been having multiple issues regarding union strikes. Industries such as

automobiles, mining, agriculture, teachers, bus drivers, postal workers, construction, textiles, and

more, have seen strikes in the past five years. Many of these strikes have been backed by

COSATU (Congress of South African Trade Unions) giving unions too much leverage over

businesses. Also, it is creating internal friction between COSATU members. Some of the pay

raises unions are demanding are as much as a 60% for 2014, while employers are offering only

6%, such as the National Union of Mineworkers (Wynne, 2013).

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Labor unions are gaining increasing powers over employers, which reflect poorly onto the

penetration of these markets. Internationalizing companies should be aware of these upcoming

issues, in order to fully understand the risk of internationalism.

Trade Partners/ Agreements

Within the European Union, South Africa is the largest player in Africa, despite geographic

distance. This is mainly because of the Trade, Development and Co-operation Agreement. This

agreement has established a free-trade area between the European Union (EU) and South Africa,

creating high incentives for businesses attempting to penetrate EU markets. Major exports

include a diverse array of products such as fuels, mining products, machinery, transport

equipment, and other semi-manufactured goods. The EU is by far South Africa’s most important

development partner, “…providing for 70% of all external assistance funds”. (European

Commision, 2013)

These immense ties to the EU have great benefits and threats to South Africa. It is important to

note that because of these beneficial trade agreements, South Africa is allowed to receive large

incentives when trading to the EU market. It also means that they are dependent on the strengths

of the EU, which has become suspect in the past years.

Foreign/Domestic Incentives to Invest

The government in SA has created agencies to assist foreign and domestic investors in the

divesture and internationalism process. Investment South Africa (ISA) and the Department of

Trade and Industry (DTI) are agencies that facilitate communication between potential foreign

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investors and public-sector officials; as well as offer incentives to invest. They also provide

fiscal funding in order to promote growth for foreign projects. These incentives apply to

domestic and foreign investors. Lower tariffs to EU markets have also helped South Africa gain

investment potential. (South African Development Community, 2012)

The Department of Trade and Industry and the Industrial Development Corporation of South

Africa mostly offer non-tax incentives because of increased government expenditures that pay

for these programs. For small businesses investing over 3 million in assets incentive programs

offer:

An establishment grant payable for three years, worth 10.5% of qualifying assets

Profit/output incentive, calculated at 25% of profit before tax, payable for an

additional year

An additional two-year profit/output incentive provided the industrialist can meet

or exceed the human resource remuneration to value-added ratio of 55% measured

in the fourth financial year

A foreign investment grant to overseas companies investing in new machinery and

equipment

(South African Development Community, 2012)

Industrial Development Zones (IDZ) are zones that loosen labor and environmental restrictions

and offer fiscal incentives or non-fiscal services to foreign companies. A dedicated IDZ authority

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will be there for services such as administrative support, advanced labor relations and incentive

structure (tax holidays, market access agreements).

Export incentives by South Africa include partially compensating exporters for certain costs

incurred in respect of activities aimed at developing export markets. Compensation for activities

like export market research, outward investment recruitment missions, and exhibition assistance

can be given to the exporter if they qualify.

These multiple programs offered in South Africa provide extra incentives for a nation to, at least,

engage in talks of internationalism, and can provide multiple resources for the planning phase of

internationalizing.

External Environment

Social structure

There are actually two dominant classes in South Africa today, one being the black upper middle

class that almost completely controls the politics in this country (Mbeki). Although they control

politics this class hardly has any impact on the economy in South Africa (Mbeki). The other

dominant class controls much of the economy and they are the owners and higher up members of

the Minerals Energy Complex (MEC) which is the center of the South African economy

(Mbeki). Even though racial differences were “set aside” in 1994, there is still quite a large gap

between blacks and whites when it comes to wealth. The biggest difference is seen in the Indian

and Colored groups as many have jumped up to the middle class. Symbols of status have

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changed dramatically since the industrial world came storming into South Africa and now

include luxury items as well as one’s level of education acquired and where it came from.

(Mbeki)

Standard of living

The average GDP per capita is 11,600 dollars which is ranked 109th. (CIA) The highest 10% of

salaries make up 51.7% of the money while the bottom 10% makes up 1.2%. (CIA) Those

numbers give South Africa a .63 Gini index which means that the distribution of wealth is not

equal. 31.3% of citizens are living below the poverty line. (CIA) Even though there has been an

explosion in agriculture and the mining industry, most of the jobs that the locals are able to

acquire are still so low paying that they are living at or below the poverty line.

The poorest people in South Africa have come across an epidemic when it comes to drug

addiction. Nyaope is the drug of choice and it is a mixture of marijuana, low-grade heroin,

antiretrovirals (AIDS medicine), and other chemicals like rat poison. (NBC) The cost for

Nyaope is only 30 rand, or three dollars, per hit. (NBC) Most of the poor that get addicted to the

drug resort to crime such as stealing and prostitution. (NBC) SANCA is a string of rehab centers

that reports that the number of people seeking help is exponentially increasing every couple of

months. (NBC) Unfortunately there is not enough money or medicine to treat everyone so the

waiting list is very long. (NBC) “Krokodil”, which consists of codeine and gasoline, is another

drug that is popping up all over the world, including South Africa and it causes flesh destruction.

(NBC)

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South Africa has a major problem with rape and an even larger problem with the lack of people

reporting rape to the authorities. Many report that the reason for having one of the highest

prevalence’s of sexual assault is because the high unemployment rates lead to traumatization and

social stress, which in turn cause people to be mentally unstable (Guardian). A study conducted

in 2010 discovered that one in four women had been raped during their lifetime (Guardian).

That being said, only one out of 13 women raped by non-partners and one out of 25 raped by

their partner even bother to report the crime (Guardian). So even though South Africa says that

sexual assault has gone down, it has risen 1.5 percent in all actuality (Guardian). It is believed

that the continuous rise of this heinous crime is because of those accused of sexual assault being

rarely convicted, which has led to the closing of the family violence, child protection and sexual

offence units in 2006 (Guardian). However, it was realized in 2011 that there were too many

sexual offense cases to keep up with so only that unit was brought back in to affect. In addition

to rape and drugs, murder is rampant throughout the country.

In an interview our team conducted with a native, Jackie Ramos, she implied that safety was an

intense and sensitive issue in South Africa. Being a native, she has seen the nation pre- and post-

Apartheid. Business is not recommended to be conducted in Johannesburg. Slums are to be

avoided at all cost where “rule of the land is force” (Ramos, 2013). Murder and rape statistics per

100,000 people are located in Appendix F.

Diet and Family Duties

Most people usually eat starches and meats that that can be easily obtained from farming, but

there is a much different diet that resides in the Cape. (Copland) The Cape combines many

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cultures of food including Dutch, English, and Asian. (Copland) Food is a major focus in the life

of the community as well as the family excluding those of British origin who tend to be more

relaxed about it. (Copland)

In many rural places, the traditional division of labor still exists which consists of the women

tending to the fields while the men take care of the livestock. (Copland) Now since many have

moved into the towns and cities, the main source of work has gone to mining and industrial

centers. Originally this was all black people, but the opportunity for education for them has

grown rapidly, allowing them to take over better jobs to help them grow their middle class.

(Copland) Usually infants and children are cared for by female relatives, but the availability for

this to be done is often limited because of a high prevalence of teenage mothers. (Copland)

Many of the middle to upper class families can afford a caregiver which greatly helps the family

as well as another family because it creates extra jobs. (Copland) Women were traditionally left

out of any decisions or even making money, but since the reform, things have been slowly

moving in the favor of equality. (Copland)

Ethnic divisions

There are far more black Africans than any other ethnicity in this country and the

gap in social status and wealth is overwhelming. The World Economic Forum states

that South Africa’s women’s rights ranking is fourth out of 53 countries in Africa.

It also states that the “gender gap index” is very favorable towards women

worldwide, ranking in at sixth and also ranked 26 th in “gender empowerment

measure”. (Economist) The South African constitution, written in 1996, states that

15

there will be no sexism or racism allowed. There have been many amendments

made to the constitution in regards to equality over the years since it was passed.

These amendments include legalizing abortion, equal marriage power for women,

banning any discrimination in education, and equal employment opportunity.

(Economist) Women are in an impressive 44 percent of parliamentary seats

including many that were previously considered “a man’s job”. (Economist) Even

though women are employed at about the same rate, white males still hold almost all

of the senior management positions. Additionally, even though it seems that women

are being treated better, it is not at all true when it comes to the abuse they take in

their black, male run homes. (Economist) In certain parts of the country young

women are still being forced to marry older men who treat them like slaves.

(Economist)

Religion and Language

Most black people in South Africa still follow rituals when slaughtering animals for food as well

as ancient techniques for brewing cereal beer and how to consume it. (Copland) The most

deeply held ceremonies and occasions always have to do with births, initiation, marriages, and

funerals. (Copland) The old ways of religion include having herbalists and diviners, and even

when the Christians came in with much different beliefs the indigenous people decided to go

with a combination of the two creating a popular Afro-Christian cross religion. (Copland) There

usually aren’t many big issues revolving around religion in South Africa because the

Christian/Protestant ideals are so widely spread and accepted.

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There are many languages spoken by the people in South Africa, which could be in part due to it

being a hub for trade. However, the main language spoken in the business world is English

because the people predominantly running any businesses are white and from Europe or North

America.

Literacy Rate and Education

Literacy is defined as being over 15 years old and being able to read and write. 93% are literate

with males being very slightly more literate. (CIA) Education makes up for 6% of the total GDP

which is ranked 38th in the world comparatively. (CIA) In the low income areas, public

schooling has little to no resources to be successful while upper class communities enjoy well-

funded private schools that are usually Jewish-run. (Edu) There are over twenty universities and

technical institutes, but recently a lack of economic resources has limited who can get in and

there is a possibility of some having to shut down. (Edu) As of right now, there are eleven

traditional universities, six technological universities, and six comprehensive universities. (Edu)

Because of the reach of higher education in South Africa about one in five young South Africans

enroll in higher education, far surpassing the other countries across the continent. (Edu) The

growth of colleges has been explosive as proven by the fact that the number of students has

almost doubled since the constitution passed in 1996. Also, since then, the percentage of white

people enrolled dropped from 50 percent to 25 percent with Africans blowing by them with the

new equality laws. (Edu) Although this sounds promising, the dropout rate is astronomic at 45

percent, mostly because the government is funding education less, making it impossible for some

to pay the steadily increasing tuition fees. (Edu) Of those who do graduate, there is a very even

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distribution of majors between science and engineering, business, education, and social sciences.

(Edu)

Unique facts and features of this country’s culture

The divorce rate is extremely high at over fifty percent; so many black couples are just living

together without ever actually making anything official. The first black president of South

Africa, Nelson Mandela, was imprisoned on Robben Island for trying to free his race from white

oppression.

South Africa is home to the most Great White Shark sightings of any other country in the world,

making it a majority of the show “Air Jaws”.

The country Lesotho is one of the two countries completely surrounded by another country. It is

one of the poorest countries in respect to GDP and has the third highest prevalence of HIV/

AIDS.

Hofstede’s Research and Dimensions

The power distance rating in South Africa is 49 so there is a basic understanding that people

have their position in society and they more or less listen to their superiors. (Hof) The power

distance rating for America is 40 so they might not get away with bossing around South African

employees. It is considered individualistic rather than collectivist with its score of 65 in this

category. (Hof) This individualistic ideal means that people are worried more about themselves

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and family instead of the community as a whole, and they have the sense that they are on their

own. The U.S. is also considered individualistic, but it is far higher with a rating of 91. This

could make South Africans think that Americans are selfish and only care about themselves.

South Africa received a 63 in favor of being masculine which shows that the people would rather

be the best and compete to get better instead of just having a job or doing things they enjoy

which is almost identical to the U.S. (Hof) Being masculine boils down to meaning that

performance is everything and it doesn’t matter how you get there. (Hof) Under the uncertainty

avoidance category, South Africa got a 49 showing that they lean towards avoiding situations

that cause them any doubt. (Hof) This is very close to what the U.S. has, so South Africa would

be a great country for entrepreneurs to find opportunity or joint ventures to occur. Comparison to

the United States is located in Appendix G.

Ubuntu is a big deal in South African communities and it means “people are people thru other

people; I am human because I belong to the human community and I view and treat others

accordingly”. (Ubuntu) Essentially it means valuing the community over oneself, striving to

help others, and respecting others. (Ubuntu) This is very strange when comparing these ideals to

Hofstede’s dimensions because they are individualistic and masculine, but Ubuntu refers to a

group of collectivists with feminine ideals. In my opinion these figures are so different because

the dimensions were taken from the business world and not the community of black South

Africans who take this ideal seriously.

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Internal Environment

South Africa’s internal environment in regards to business processes, business structure,

organizational behavior, and organizational culture is highly reflective of the country’s social

atmosphere and history. (Farley, Hoenig, & Ismail, 2008) South Africa has being undergoing a

transformation from its apartheid past, as well as issues with high unemployment, causing the

South African government to underline the need for firms to include social elements in their

business ethos. (Farley, Hoenig, & Ismail, 2008) Due to this, there is a high amount of

motivation to employ social appeals in corporate marketing strategy. (Farley, Hoenig, & Ismail,

2008) Furthermore, with the collapse of apartheid whereas the country’s black majority was

marginalized via a lack of rights, and there being a complete barring of the black population

from participation in the political system; South Africa has been for the past 20 years in a

transitional period whereas the country has had its first multi-racial election in 1994. (Farley,

Hoenig, & Ismail, 2008) (Lob, 2013)

South African industries tend to have a low concentration ratio with moderate to strong levels of

competition, either from domestic companies or multinationals. (Farley, Hoenig, & Ismail, 2008)

Also, it is often seen as having a dual economy with two distinct sectors, one sector that is very

similar to the developed world in regards to trends, and another that is undeveloped but is

developing and following similar patterns as some emerging markets. (Farley, Hoenig, & Ismail,

2008) Furthermore, South Africa has many market segments that have not been understood or

tapped. (Farley, Hoenig, & Ismail, 2008) These segments are generally low-income and high-risk

yet have high growth potential. South African corporations are currently having to deal with

these segments due to their potential growth, global developments, and due to government

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initiatives. (Farley, Hoenig, & Ismail, 2008) This makes South Africa’s economy very unique

compared to that of most other nations.

Organizational Characteristics

The 6 Hofstede dimensions of organizational culture quite sufficiently explain the general

internal environment of South African businesses. South Africans tend to be results-oriented and

very open to Western ideas, as long as they “fit” in regards to South African business

expectations and goals, though they can also be very process-oriented at times due to there being

a high amount of respect for the rationalist approach in problem solving. (Foster, 2002) South

African businesses tend to have a loose amount of control, as there is oftentimes a lot of

forgiveness present for delays and unexpected events, as well as when things do not go as

planned. (Foster, 2002) Furthermore, there tends to be many interruptions in meetings, as

obligations with people and keeping up of relationships tend to be more highly prioritized than

tasks and schedules. (Foster, 2002) Additionally, due to how high of a priority relationships have

in South African businesses compared to tasks and schedules, South African businesses can be

seen as very employee-oriented, as opposed to work-oriented. (Foster, 2002) These particular

organizational traits common to South African businesses show how they tend to be very relaxed

and value their relationships with employees very highly.

The other Hofstede dimensions of organizational culture further explain the internal environment

of South African businesses. Employees of South African businesses tend to be very parochial-

oriented as opposed to professional-oriented due to a deep obligation embedded into the culture

to treat one’s company and co-workers with utmost respect; causing them to acknowledge the

company they work for when talking about their professional careers. (Foster, 2002) According

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to an article on South Africa in the Journal of African Business whereas a study was conducted

on various South African organizations, South African organizational culture was found to be

very open in regards to newcomers and public accessibility. (Farley, Hoenig, & Ismail, 2008)

This was shown via how statistical data on South Africa concluded that the country’s

organizations are very entrepreneurial and competitive as opposed to bureaucratic and

consensual. Located in Appendix H. (Farley, Hoenig, & Ismail, 2008) Furthermore, employees of

South Africa are very pragmatic as opposed to normative. (Foster, 2002) Rather than following

norms, South African organizations have a tendency to just do what fits in with their company,

as well as prioritize interpersonal relationships and results as opposed to tasks, schedules, and

how tasks are done, for they are known for being very opportunistic and have a tendency to just

do what fits their organization in a given situation. (Foster, 2002) South African organizations

have a very unique and complex organizational culture.

In the year 2000, researchers and professors from the Tuck School of Business of Darthmouth

College, Fox School of Business and Management of Temple University, and the School of

Economics and Business Sciences of the University of Witwatersrand, South Africa conducted a

study on South African businesses that utilized the “Modified competing Values Model of Firm

Performance” in order to compare South Africa organizations to those of various first world

countries.(see Appendix I) (Farley, Hoenig, & Ismail, 2008) This study utilized questionnaires

and interviews and was conducted in Johannesburg, South Africa. (Farley, Hoenig, & Ismail,

2008) It found that South Africa ranked the highest compared to Japan, the United States,

France, England, and Germany in competitiveness in its markets. (Farley, Hoenig, & Ismail,

2008) Also, compared to these countries, South Africa ranks high in entrepreneurship, low in

22

bureaucracy, and the lowest in regards to requiring official consent before making decisions.

(Farley, Hoenig, & Ismail, 2008) This shows how low South Africa is in regards to uncertainty

avoidance and power distance, making it a great country for new business ventures.

Motivation and Incentive Programs

South Africa is in a very unique position in regards to motivation and the meaning of work

within its workforce. With apartheid ending relatively recently, 1994, many of the people in

South Africa’s workforce grew up with apartheid being a major part of their lives. (Sully, 1993)

That said, a major part of apartheid was how the education system of South Africa as well as the

laws bred the Black majority for unskilled labor and the White minority for skilled labor. (Sully,

1993) The country is still recovering from apartheid, even enacting laws in order to speed up the

recovery, such as the Black Economic Empowerment law which gives all companies within the

country a quota as to how many Blacks they must hire so they cannot be partial to hiring

Caucasians. (Lob, 2013)

According to an analysis conducted by Doctor Preis Max Sully of Rhodes University, employees

and employers of South African businesses tend to see themselves as the vanguard of change and

development, and due to that, have a strong desire for a sense of identity and place. (Sully, 1993)

South Africans tend to follow cultural/religious responsibilities very closely, with many in the

middle and upper classes owning farmland in rural areas and being active farmers. (Sully, 1993)

Furthermore, people of the South African workforce tend to value work for its materialistic,

religious, moral, individualistic(personal fulfillment), and societal functions. (Sully, 1993) In

regards to the value of work, South Africans tend to see high valued work as that of being

associated with large returns, personal control and responsibility, high job security, and high

23

personal benefit, while low valued work as being controlled and dependent, having low security,

and benefiting another. (Sully, 1993) South Africans have a very Western view of the meaning

of work.

South African companies use many means in order to give incentive and to motivate their

employees. Many of these businesses use services such as that of Selftours, a corporate

incentives and events management company, in order to design their motivation programs.

(Selftours Corporate Incentives and Events Management, 2013) Additionally, these businesses

mainly utilize the Maslow theory of motivation in order to shape the incentive systems of

companies. (Selftours Corporate Incentives and Events Management, 2013) This theory states

that one cannot motivate someone but said motivation must come from within; though one can

supplement this via persuasion. (Selftours Corporate Incentives and Events Management, 2013)

That said, businesses in South Africa often use rewards, prizes, promotions, and company trips in

order to motivate their employees. (Selftours Corporate Incentives and Events Management,

2013)

Furthermore, according to a book on organizational behavior in South Africa, South African

businesses oftentimes focus on incentivizing improving performance and obtaining more skills.

(Robbins, 2009) The incentives are usually either monetary or intrinsic (via recognition through

awards such as “Employee of the Month” or just compliments). (Robbins, 2009) Monetary

incentives are usually distributed based on pay-per-performance. (Robbins, 2009) This is

checked either via merit-based performance appraisals, the amount of units of production one has

completed in a given time frame, the amount of skills one has, and/or via profit-sharing, in which

24

a percentage of a company’s profits are used for bonuses. (Robbins, 2009) Intrinsic employee

recognition plans in South Africa are all either spontaneous and private or organized and widely

publicized in which the procedures for gaining recognition are clearly documented. (Robbins,

2009) Employee recognition in South Africa varies a lot from company to company and is highly

dependent on the variations of organizational culture that each company exhibits.

Leadership

According to the GLOBE study, the South African leadership style can be seen as being in the

middle-ground compared to all other countries that were studied in regards to performance-

orientation, team-orientation, participative, autonomous, and self- or group- protectiveness.

(Hoppe, Culture and Leader Effectiveness: The GLOBE Study, 2007) The only category that

South African leaders score relatively high in would be in being humane. (Hoppe, Culture and

Leader Effectiveness: The GLOBE Study, 2007) The results of the study show that their leaders

are moderate in regards to inspiring people around a vision, having high standards, decisiveness,

innovation, instilling pride, loyalty, collaboration among organizational members, encouraging

input from others in decision-making and implementation, being independent, being

individualistic, being self-centric, and utilizing procedural, status-conscious and face-saving

behaviors. (Hoppe, Culture and Leader Effectiveness: The GLOBE Study, 2007) It also shows

that they tend to highly stress compassion and generosity, and have a tendency to be very

supportive, patient, and concerned with the well-being of others. (Hoppe, Culture and Leader

Effectiveness: The GLOBE Study, 2007)

Furthermore, the GLOBE study also split their statistics on South African preferred leadership

style by race. (See Appendix J) According to the study, both black and white South Africans tend

25

to prefer charismatic leaders, though whites tend to prefer them more so than blacks. (Hoppe &

Eckert, Leader Effectiveness and Culture: The GLOBE Study, 2012) This is also true in regards

to team-oriented leaders, participative leaders, and humane-oriented leaders. (Hoppe & Eckert,

Leader Effectiveness and Culture: The GLOBE Study, 2012) Additionally, according to the

study, it would seem that both blacks and whites of South Africa dislike having leaders who are

self-protective and autonomous, or individualistic. (Hoppe & Eckert, Leader Effectiveness and

Culture: The GLOBE Study, 2012) This ties in with how South African society, according to

Hofstede’s cultural dimensions, tends to be moderate in regards to power distance. (Farley,

Hoenig, & Ismail, 2008)

According to a study on South African managers and staff conducted by the business school of

the University of Witwatersrand, their common traits and expected traits are highly dependent on

demographics. (Lee, 2011) Black staff, as well as female staff, tend to prioritize competence in

regards to expectations of leaders. (Lee, 2011) This can be attributed to high barriers on these

groups in the past when attempting to enter leadership positions. (Lee, 2011) White, male

employees, as well as managers, tend to mainly prioritize honesty in leaders. (Lee, 2011)

Furthermore, Black managers tend to prioritize planning much less than white managers in South

Africa, and white managers tend to prioritize self-control and determination higher than black

managers. (Lee, 2011) Finally, between all demographics, being inspirational is a highly

expected character trait of leaders, though is second to honesty and competence. (Lee, 2011)

Demographics must be highly considered when analyzing South African views on leaders due to

each demographic having major differences in viewpoints.

26

In regards to the role of the manager in South Africa, according to the study mentioned in the

previous paragraph which was conducted by the business school of the University of

Witwatersrand; managers see their role as organizing their employees and resources in order to

complete short-term objectives. (Lee, 2011) They also see it as having the requirements of

inspiring employees and adapting their department to cope with the external environment. (Lee,

2011) Furthermore, they see their role as requiring forward-looking leadership and a high

strategic focus. (Lee, 2011) Additionally, managers are expected to conduct and guide meetings

in order to have ideas shared among managers and subordinates; as everyone is seen as important

in South African businesses and as having something to contribute. (Kwintessential, 2012)

Managers have a large role in South African businesses.

Decision-Making

Decision-making in South African companies, according to information mentioned in an article

in the Journal of African Business and information from The Global Etiquette Guide to Africa

and the Middle East, is highly decentralized. (Farley, Hoenig, & Ismail, 2008) This is due to how

employees of South Africa tend to be very risk-averse yet decision-makers tend to be very prone

to making risky decisions. (Foster, 2002) Given this, and how South Africa is low in regards to

power distance; decision-makers in South African organizations tend to request the opinions of

employees relevant to the situation before making decisions. (Farley, Hoenig, & Ismail, 2008)

(Foster, 2002) This is further explained via South African general culture and how embedded

into it is a culture featuring a high concern for individuals within one’s group; and due to this,

decisions makers are obligated to consult with subordinates before making decisions. (Foster,

2002)

27

Communication

Although South Africa features a plethora of languages, it is mainly English that is used in

business communications there. (CDA Media, 2012) During business communication, people are

mainly addressed on a first name basis, humor is very common and there is often a high amount

of tactility present. (CDA Media, 2012) Furthermore, white South Africans prefer plain-speaking

to overly diplomatic approaches, while black South Africans tend to follow somewhat opposite

practices. (CDA Media, 2012) Black South Africans tend to stress diplomacy in their

communications and oftentimes attempt to not disappoint listeners by disagreeing openly or

admitting that they do not know an answer to a question. (CDA Media, 2012) South African

business communications are for the most part very Western.

Employees in South African companies tend to have a lot of say in South African businesses.

Decision-makers in South African organizations have a tendency to consult subordinates before

making decisions. (Foster, 2002) This is mainly due to how decision makers in South Africa are

usually very bold and reckless, subordinates have a tendency to be very risk-averse, and a

concern for others in the group is always present. (Foster, 2002) Additionally, South African

communication, especially that of black South Africans, tends to be very high-context, with

metaphors often being used in communications as well as stories, codified phrases, analogies,

precedent, and nonverbal behavior. (Foster, 2002) This is caused by how highly they(black South

Africans) oftentimes prioritize relationships over tasks, which causes them to avoid

confrontation. (Foster, 2002) Business communications by white South Africans tend to be a bit

more low-context. (Foster, 2002) This can make communications in South Africa somewhat

complex and require quite a bit of adaptation.

28

Managerial Profile

Managers of South Africa tend to have a high amount of accumulated work experience and tend

to be very educated. They usually have at least 14 years of experience and at least a bachelor’s

degree. (Salary Survey in South Africa in General Manager, 2012) Also, as a remnant of

apartheid, most senior managers are white, though due to an influx of black professionals into

companies and the use of affirmative action programs which have been in part the cause of the

influx of black professionals, many middle managers are black. (CDA Media, 2012)

Furthermore, most managers, according to surveys conducted by Salary Explorer, are between

38 and 57 years old, with the younger managers usually in the technology industry and older

managers usually being in the engineering or architectural industries. (Salary Survey in South

Africa in General Manager, 2012) Additionally, depending on the amount of experience a

manager has, they can be in charge of between 5 to 56 people. (Salary Survey in South Africa in

General Manager, 2012) South African management is still under the aftereffects of apartheid,

though via affirmative action initiatives and the transition of the business environment there to

adapt to the global economy, it is likely to change in the future, as the ethnicity percentages in

management start to reflect the general population more.

Women in Management

South African women have historically been underrepresented in the decision making processes

of organizations. (Wells, 2006) That said, the number of women in government bodies and

private sector organizations has been steadily increasing due to affirmative action legislation

which utilizes quotas to bring in more people into organizations that are of underrepresented

demographics. (Wells, 2006) Furthermore, increasing numbers of women are entering into the

management ranks, though there is still a high discrepancy between men and women in private

29

sector organizations; and between the gender awareness rhetoric and legislation due to the

country’s history of deep-rooted racial inequality, this problem should eventually be resolved.

(Wells, 2006)

The amount of women in management positions in South Africa has been improving during post-

apartheid. In the past decade, an increasing number of young, black, inexperienced women have

found themselves in management positions at non-government development organizations.

(Wells, 2006) South African women are constantly faced with tension from anti-social change

rhetoric stemming from before the emancipation of apartheid in South Africa, and deep-rooted

cultural codes on appropriate behavior for men and women. (Wells, 2006) Still, the efforts of

South African women in regards to rising in company ranks and getting into leadership positions

has been high, and if it continues, gender inequality issues will continue to improve. (Wells,

2006)

Unique Features of South Africa’s Management System

Unique features of South Africa’s organizational management mainly have to do with the

demographics of management there, because of the effects of apartheid and the country’s diverse

population. First of all, due to apartheid, most managers, especially upper level managers, are

white (73.1%), though the government of the country is attempting to remedy this and balance

this out more via affirmative action initiatives that put quotas on the amount of blacks a company

must hire. (CDA Media, 2012) (Mail & Guardian, 2011) Over time, the races of managers in

South Africa may start to reflect more, the population of the country, which has a majority black

population and minority white population. (Foster, 2002) (Central Intelligence Agenct, 2013)

Furthermore, white and black managers tend to have some variations in their management styles

30

due to white managers utilizing a more European style and black managers utilizing a more

African style. (Foster, 2002) Also, due to apartheid, there are almost no, if any, female senior-

level managers in South Africa, and female employees tend to experience a lot of condescending

behavior from male employees. (Kwintessential, 2012) The unique features of South Africa’s

managerial diversity issues and variances may bring up many issues for companies planning on

doing business there in the future.

Conclusions and Recommendations

Culture Comparison

South Africa is very much like the U.S. in that it is comprised of many different cultures,

traditions, and ideals. Also like the U.S., it has hybrid cultures that take both traditional views

and at the same time mix more modern views. This mixture of many cultures brings a massive

diversity in tastes of food, music, and art. For Example, in addition to the country’s most

popular genre, jazz, South Africans enjoy listening to pop and rock music. Even though there is

still a vast amount of inequality, they are pushing towards become a more accepting culture just

like the U.S. has been doing since the mid-1900s. The cultural norm for women in South Africa

is mainly to take care of kids and the home, which is still also the norm for America even though

we are moving further away from it. Religion is another category where both countries are

comparable, seeing as both vastly accepts Christianity as the main faith. Hofstede’s dimensions

are also relatively similar showing yet even more proof that these cultures, yet very different in

wealth, are much more similar than many think.

31

A big difference that American’s might have to look out for is the much more accepted illicit

drug and crime rings throughout. Hardcore drugs like Nyaope can cause people to commit

insane crimes in order to get their hands on more and it usually doesn’t get stopped because of

the lack of any enforcement.

Management Comparison

Be aware of different races and be sure not to discriminate, intentionally or not. Even though

everything seems fine, there is still tension between different races in the business world since

the apartheid system of business was abolished. Also since companies have begun going more

private instead of public, structures of businesses throughout the country vary greatly unlike the

United States’ typical business structure. The post-apartheid management style made it much

more similar to the U.S. than in the past. It is the idea that managers should be in charge, but

also seek and advise from those working beneath them. When meeting with a company in South

Africa, managers should always keep in mind the recent history of the country and know what

type of company you are dealing with; Black or white managed. When a manager makes a team

in South Africa, he/she should be very sensitive of the tensions between different groups. This is

more than black or white because of the many different black cultures within the country. Black

managers are similar to Americans in communicating in that they do not want to hurt the other

person’s feelings, while white South Africans can often seem vague and uncommitted. Another

commonality is that both cultures use humor to diffuse a potentially heated moment. One

important thing to remember when talking is not to use formal titles, but instead just first names.

Good firm handshakes show that people can be trusted and you should not cower away. Even

though South Africa is attempting to make a move towards gender equality at the management

level, it is very rare to find a female senior manager. Because of this, American companies

32

might want to just send males into the meetings with companies that have local male managers to

avoid any possible issues. The dress code expected of management in South Africa is identical

to U.S. business attire so there doesn’t need to be any adjustments. After a business meeting it is

not unusual for local managers to offer to take you out to a restaurant or their home for many of

the delicious foods South Africa has to answer. They also have good beer and wine and drinking

with other fellow managers is almost expected when dining out, which makes conversation a lot

easier with someone you may have just met.

Cost-Benefit-Risk Analysis

Found in Appendix K.

ConclusionIn conclusion, we recommend doing business in South Africa. They have a lot of government

support for entrepreneurial ventures. The country has very similar cultural traits to Western

countries when compared using the Hofstede cultural dimensions as well as the Hofstede

organizational culture dimensions. The main issues that American countries would face there

would include the high corruption rate present there, the high crime rate, the high amount of

social unrest there, and the problems that may arise from the remnants of Apartheid.

Furthermore, it may be difficult to employ skilled labor there due to the high cost of higher

education in South Africa and affirmative action government initiatives that set quotas for how

much of each demographic each company must employ. Also, since Apartheid ended 20 years

ago there is much of the non-white population that is not educated. Overall though, we believe

the benefits outweigh the costs and risks due to the low cost of doing business in South Africa,

the low political risk present there, the high amount of government support to businesses there,

33

and the similarities it has to most Western countries. South Africa has increasing ties with the

European Union, so it can also be a market entry strategy.

Industry potential could include the mining, manufacturing, or technology sectors. If you could

introduce new mining technology into the country, companies may be able to own premium

market share because of massive platinum and gold deposits. Manufacturing will flourish

because of low-skilled labor cost and government incentives to internationalize such as tariff and

benefits. The tax-rate is lower than the U.S, so companies can participate in tax-advantage in

manufacturing. Technology sectors are also good sectors to internationalize in South Africa.

This sector is far behind the United States and you can gain first-mover advantage. The

government also includes large incentives in this sector as well.

The main way to ensure success with interactions with South African locals is to remember the

variance in cultures and styles between one’s host country and South Africa, as well as between

the different demographics of South Africa. English is the dominant language in business, so

Americans can enjoy not learning a foreign language. Americans may require some support in

getting used to the differences in culture compared to the United States, but for the most part,

they should be fine in the adaptation, as long as they know what to expect and familiarize

themselves with the business laws and customs there.

34

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Appendix

Appendix A: Government Structure in South Africa

Appendix B: Political Risk Assessments

39

Appendix C: Annual Trend of Economic Freedom in South Africa

40

Appendix D: GDP per Capita vs. African Nations and U.S.

US South Africa Botswana Nigeria0

10,000

20,000

30,000

40,000

50,000

60,000

GDP Per Capita

GDP Per Capita

Appendix E: GDP by SectorSector Agriculture Industry Services

Percentage of GDP 2.6 29.3 68.1

Appendix F: Murder and Rape per 100,000 vs. U.S.

Rape/100,000 Murder/100,0000

10

20

30

40

50

60

70

80

90

100

South AfricaUnited States

41

Appendix G: Hofestede’s Dimensions vs. U.S.

Power Distance Individualism Masculinity Uncertainty Avoidance

0

10

20

30

40

50

60

70

80

90

100

South AfricaUnited States

42

Appendix H: Analysis of Organization Variables

Figure 1 Source: Journal of African Business Vol. 9

Appendix I: Organizational Culture Chart ComparisonOrganizational Culture

TypesJapa

n

United

States

Franc

e

Englan

d

German

y

Mean of the 5

Countries

South

Africa

Buereaucratic 99.9 80.3 99.1 76.8 83.2 89.6 79.99

Competetive 103.3 112.5 93.7 116.3 89.4 104.4 100

Entrepreneurial 77.6 105.8 128.3 99.1 131.1 100.3 126.9

Consensual 119.3 101.4 78.9 107.6 96.2 105.8 92.4

43

Organizational

Climate27.2 26.9 26.3 26.7 26.5 26.8 28.6

Organizational

Innovation17.5 18.4 16.3 17.5 18.2 17 16.1

Market Orientation 32.5 34.8 32.1 33.1 36.9 33.4 36.3

Appendix J: Leadership Styles Based on Race  Ideal South African Leadership Styles Based on Race (Globe Study)

Race

Charismati

c Team-Oriented Self-Protective Participative Humane-Oriented Autonomous

Blacks 5.16 5.23 3.63 5.05 4.79 3.94

Whites 5.99 5.8 3.2 5.62 5.33 3.74

Figure 2 Source: Globe Study

Appendix K: CBRA

44

45

Costs

High cost for higher education

Moderate Tax Rates

Affirmative action initiatives detrimenting the hiring process by limiting employment based

on skills and needs due to quota restrictions on hiring of

various demographics

High corruption rate requiring bribes

36% of work permits are obtained via bribes

14% Value Added Tax

Managers, especially black managers, tend to prioritize relationships over tasks and

schedules

BenefitsThe government helps out

foreign and domestic companies by offering fiscal and non-fiscal

assistance

High Diversity

Hostede's dimensions are similar to the United States

except for individualism

Both the US and South Africa are predominantly Christian

Main language in businesses is English

Government gives a lot of grants to businesses

Low to medium political risk

Moderate corporate and personal income taxes that are similar to those of the

United States

Very open and casual organizational culture

Expanding welfare program giving free money

Richest Country in Africa (one of the BRICS countries)

Very entrepreneurial culture with a very open

organizational climate

There is already a high amount of multinational competition

in South Africa

Organizational culture is very open to Western ideas

RisksLarge amounts of low skilled

labor

High unemployment

Moderate Amount of Labor unions

High social unrest

High crime rates

High corruption

The African National Party has a high amount of influence on the legislative and executive branches of the government

South Africa's apartheid past still has an influence on many people's beliefs regards the roles of different races and

genders in society

Managers tend to be individualistic while

employees tend to be collectivistic

Low primary school education standards