**3. How do we explain business internationalisation? Theory and experience**

The interest in the expansion of EMTNCs commenced more than 25 years ago when it became apparent that firms from emerging markets were gradually penetrating global markets. Matthews noted that the accelerated internationalisation of latecomer firms from the periphery, as well as the innovative strategies through learning and resource acquisition [16], added a dynamic nature to the EMNCs' participation in global markets. The interest became more systematic as the trend in OFDI reversed the dominant position of the developed markets' MNCs to OFDI from developing markets. Internationalisation theory developed from the initial economic model [17] with the emphasis on economic cost considerations of doing business abroad, such as transaction costs and uncertainty in markets [18, 19, 84], to the eclectic paradigm of the successive Dunning models depicting components or phases of internationalisation [81, 27–29], to the process model of the Uppsala school [18, 20–22, 98]. The 'economic man' was gradually replaced by the 'behavioural man' in the process model by explaining internationalisation based on organisational theory [18, 69]. Dunning's OLI model of firm expansion through ownership (O) advantages (firm-specific resources) and location (L) (host country natural resource endowments) allows for the internalisation of those advantages (I) to improve firm efficiency and competitiveness, rather than exploiting those advantages in other markets through arms-length transactions. Dunning [23, 81] identified a set of motives for OFDI. These include market-seeking investments targeted to access to third markets, efficiency-seeking investments to improve efficiency through specialisation, resource-seeking investments seeking natural resources unique to specific foreign locations and strategic assetseeking investments to add to the existing proprietary resources of the firm. Rugman and Sukpanich argued that firm-specific advantages (FSAs) [91, 92], complemented by countryspecific advantages or CSAs [24], which resembled the ownership and location advantages in the OLI model, determined international expansion of firms. Rugman and Verbeke [25] added the advantage of proprietary knowledge as contributing to FSA. Dunning later added alliance capitalism and firm networks that augment ownership advantages by incorporating knowledge shared in networks and alliances [23, 26, 27]. The organisational structure of internationalising firms subsequently changed from the hierarchical mode of integration, based on the transaction cost theories, to new forms of ownership domains created through networks and alliances. Utilising these networks and alliances, firms internationalised their operations by seeking strategic assets to augment their existing proprietary resources. The Dunning followers later on also acknowledged the importance of institutions in strengthening CSAs at each variable of the OLI hypothesis [28, 29, 91, 92].

The world ranking of some of these South African corporations is changing consistently. In 2008, Sasol was the highest ranked South African conglomerate on the top 100 ranked list of nonfinancial corporations—at the 22nd position, with a TNI of 31.6% ([12], p. 231). In 2012, the company failed to make the ranking of the top 100 nonfinancial corporations in the world but increased its TNI significantly to 74%. New corporations entered the top 100 non-banking companies in developing countries since 5 years ago, and this list keeps changing. When the largest companies in Africa in 2014 are compared to the top 100 rankings of UNCTAD, South African companies made up 71% of the top 50 companies. Based on market capitalisation in 2014, the largest African company is BHP Billiton, a mining and metals company, followed by SAB Miller, then Sasol, Naspers (the media conglomerate) and MTN. The African Business Magazine listed under the top 10 African companies by market capitalisation, 9 South African and 1 Nigerian companies in 2014 [102]. The top non-South African conglomerate is the Dangote cement group of Nigeria, with a market capitalisation of US\$22.7 billion (www.africabusinessmagazine.com/ sector-reports/africa-top-250-companies) [100]. These are the private conglomerates, but the largest companies on the continent are still SOEs. The African Business Review ranked Sonatrach, an Algerian petroleum company, as the largest with a turnover of US\$58.7 billion, followed by Sonangol, an Angolan petroleum SOE with US\$22.2 billion turnover. The third largest company in Africa by turnover is Sasol, with a turnover of US\$18.3 billion, followed by the MTN Group at US\$17.2 billion [14, 15] (www.theafricareport.com/top-500-companies-in-africa-2013; www.africanbusinessreview.co.za). About 26% of the top 50 conglomerates in Africa conduct their business in finance and insurance; 22% in consumer goods and retailing; 14% in mining; 12% in media and telecoms; 1% each in diversified enterprises, health care and construction, respectively; and 3% in manufacturing. When considering the 'globalisation' of African business, OFDI does not only refer to OFDI outside the African continent, but also OFDI outside the African home market into neighbouring countries or into more distant regions in Africa: the

African continent is home to 56 countries and comprises a land mass of 30,221,532 km2

**3. How do we explain business internationalisation? Theory and** 

The interest in the expansion of EMTNCs commenced more than 25 years ago when it became apparent that firms from emerging markets were gradually penetrating global markets. Matthews noted that the accelerated internationalisation of latecomer firms from the periphery, as well as the innovative strategies through learning and resource acquisition [16], added a dynamic nature to the EMNCs' participation in global markets. The interest became more systematic as the trend in OFDI reversed the dominant position of the developed markets' MNCs to OFDI from developing markets. Internationalisation theory developed from the initial economic model [17] with the emphasis on economic cost considerations of doing business abroad, such as transaction costs and uncertainty in markets [18, 19, 84], to the eclectic paradigm of the successive Dunning models depicting components or phases of internationalisation [81, 27–29], to the process model of the Uppsala school [18, 20–22, 98]. The 'economic man' was gradually replaced by the 'behavioural man' in the process model by explaining

**experience**

50 Globalization

.

The 'static' approach to EMTNC internationalisation moved on to an understanding that '… internationalisation becomes a strategy aimed at strengthening the firms themselves thanks to the accumulation of resources previously not available' ([30], p. 5). Internationalisation is explained by firms supplementing existing O by what Matthews [31] called a more dynamic acquisition of capacity and experience to overcome latecomer effects and technology gaps ([32, 33], p. 237; [34], p. 81). Internationalisation now becomes an evolutionary process ([30], p. 5; [31, 35]) in which firms without O to exploit abroad, find resources, internalise them and finally develop linkages or partnerships or networks to leverage against the risks involved in such outward strategies. Matthews thus suggested an LLL framework—Linkage, Leverage and Learning framework. Firms become increasingly integrated in international economic activities through not only asset-exploiting but also by asset-exploring, thus linking OFDI with the EMTNC strategies. Emerging market enterprises establish networks with foreign firms and learn from them (capability enhancement)—which is 'experiential learning' [87, 88]. Firms in the developing country thus acquire knowledge, experience in equipment manufacturing, joint ventures and participation in GVC [89]. Depending on the ability of the emerging market firm to internalise or 'absorb' ('identify, assimilate and exploit') the new skills, technology or resources, the EMTNC is able to venture into the global market [36–38]. Renewed emphasis is hereby placed on country-specific analyses and the Gerschenkron effect, that is, the ability of latecomers to access and take over advanced technologies and catch up faster through linkages, collaboration and the leveraging of resources [97, 99].

The dominant process model of internationalisation does not explain the entire set of internationalisation strategies of emerging market firms, since the latter are often reactive, incremental and opportunistic. EMTNC often acts to avert constraints in the domestic market. EMTNC internationalises also for reasons such as the efficient utilisation of resources, to generate economies of scale, market expansion, diversification, risk reduction, cross-subsidisation of markets, learning, flexibility in operations, market share protection and avoiding domestic competition [39, 40]. Recently, Arndt et al. [41] also added possible friction in factor markets (labour markets) and financial constraints as possible push factors towards internationalisation strategies. Ibeh et al. found that emerging market firms in Africa did 'quota hopping' relocated from certain locations to areas where favourable quotas incentivised the setting up of export firms [42]. These views place new emphasis on managerial capabilities such as leadership, strategy formulation and implementation and organisational change. These are the critical endogenous factors firms need to venture into multiple complex contexts [43].

whereby barriers to market integration are high but not inhibitive. These situations cannot be fully understood through purely country-level analyses but require an evaluation of operations across multiple locations (e.g. within a region) that are distinct from but not entirely independent of each other [55]. Therefore, the region composed of geographically proximate countries becomes an important level of analysis when examining MNEs' internationalisation and institutional influences [55, 57]. This perspective has become increasingly relevant to the

Latecomer Challenge: African Multinationals from the Periphery

http://dx.doi.org/10.5772/intechopen.81500

53

The international expansion of business from Africa, and specifically from South Africa, occurred primarily by means of mergers and acquisitions ([1, 8, 58, 59], p. 324–330; [60], pp. 253–257; [82, 83]) as expansion occurred incrementally as part of corporate entrepreneurship venturing into Africa. As South African OFDI constituted the bulk of African mergers and acquisitions between 2007 and 2013, market and asset-seeking strategies were thus pursued. New investments were relatively small—below US\$ 1 million in most transactions—and were stimulated by the unbundling strategies of conglomerates and the simultaneous refocussing strategies, as well as the privatisation policies of African governments after the early 1990s ([9], pp. 16–18; [85]). The geographical direction of business internationalisation of African enterprises was at first not aligned to the Uppsala model of Johansson and Vahlne [98]. This model predicted the direction of internationalisation of firms from developing countries through exports into neighbouring ethnically similar countries and only later into non-ethnically related countries but only as a much later strategy into developed markets. The history of African EMNC, of which most were South African companies, expansion into foreign markets shows more than half of OFDI entering European and UK markets (56% in 2013), 17.5% into North and South American markets, 16.2% into Asian markets and only 8.2% into the neighbouring markets of African countries ([61], pp. S96–S99). During the last few years, a marked increase in regional economic integration and subsequent cross-border business transactions are occurring, but the official OFDI from

The internationalisation strategies of the EMTNC from Africa were different and in response to firm-specific advantages, which varied between sectors. The semi-globalisation literature argues that not only conditions in the home market impact on internationalisation decisions [55, 56] but also the nature of the markets into which expansion is planned. The nature of developed markets in terms of similarity of demand, structure and operations was an important consideration in the direction of South African corporate internationalisation strategies. As pointed out by Ghemawat and the semi-globalisation literature, global expansion must be understood not only as a country-level analysis but as determined by conditions in the entire region. The region, which consists of a number of geographically proximate countries,

Among the early globalising companies, the eclectic process model of Dunning explains the market-seeking and asset-seeking activities, but not the timing or direction of globalisation. The political changes in South Africa unleashed opportunities to overcome the restrictions

becomes a determining level of analysis when explaining EMTNC globalisation.

**4. The nature and direction of African business globalisation**

expansion of South African firms into Africa.

South Africa into other African countries remain below 10%.

Internationalisation has also benefitted from the insights of new growth theory, considering endogenous sources of growth. Entrepreneurial capabilities are emphasised as the critical factor in growth and expansion of the enterprise [44]. The focus is on entrepreneurial orientation (EO) and international entrepreneurship (IE) (see [45–50]). EO is mostly associated with corporate entrepreneurship, which is the set of firm activities. These include venturing into new businesses, exploring and implementing innovation and elements of self or strategic entrepreneurship. EO is less explicit than IE—EO refers to the qualities of risk-taking, innovative and proactive behaviour. Some theorists also see EO as a multidimensional construct where each of the elements of EO is an independent behavioural construct that defines the space in which EO operates ([47], p. 4) IE is the discovering, enactment, evaluation and exploitation of opportunities across national borders. Some of the research focusses on international new ventures (INVs) or the so-called born globals, while others explore the international activities of established firms. According to Freeman and Cavusgil ([51], p. 3), '"International entrepreneurial orientation" is the behaviour elements of a global orientation and captures top management's propensity for risk taking, innovativeness, and pro-activeness'. The attention thus shifts to the vision of management as an important driver of internationalisation, strengthening the EO and EI explanation. Singal and Jain [52] found that clear corporate vision and strategic focus in Indian firms contributed to the successful development of globalisation strategies and successful international operations of Indian MNCs.

But the question remains: Whereto? Into which markets are MNCs expected to expand their operations? The literature developed explanations around the importance of institutions in the host market in providing stability, minimising market failures, reducing uncertainty and alleviating information complexity in economic exchanges [53, 54]. The notion that institutions matter has become axiomatic, particularly those formal institutional structures that, through written laws, regulations, policies and enforcement measures, prescribe the actions and behaviour of people, systems and organisations. In terms of geography, which geographical location will be optimal? The semi-globalisation literature noted the importance of not only considering conditions in the host market [55, 56] but also institutional strengths in region into which expansion is contemplated. The semi-globalisation approach suggests that a firm's foreign investments follow patterns exhibiting regional aggregation and arbitrage logic to cope with the opposing pressures of globalisation (i.e. integration) and local markets (i.e. localisation) [57]. Semi-globalisation involves partial cross-border integration whereby barriers to market integration are high but not inhibitive. These situations cannot be fully understood through purely country-level analyses but require an evaluation of operations across multiple locations (e.g. within a region) that are distinct from but not entirely independent of each other [55]. Therefore, the region composed of geographically proximate countries becomes an important level of analysis when examining MNEs' internationalisation and institutional influences [55, 57]. This perspective has become increasingly relevant to the expansion of South African firms into Africa.
