New South African companies are making forays into international markets much earlier in their corporate lifespan than the country’s established blue-chip firms did.
Many of these young companies are choosing the exacting American and British markets as their first ports of call, according to a new study produced by the University of Cape Town’s Graduate School of Business (GSB) and based on interviews with 103 South African company executives.
The companies involved were all less than 10 years old and had entered at least one international market.
The study was conducted by the GSB’s Associate Professor of Entrepreneurship, Eric Wood, in collaboration with the London Business School, Ipade in Mexico and the Indian Institute of Management in Bangalore.
The research, funded by the British government’s Department for International Development, formed part of a four country audit of young businesses with international sales. Other participating countries; India, Mexico and new inductee China will release their results later this year.
The research set out to answer a number of questions; such as how important internationalisation is for entrepreneurial firms in emerging markets, what challenges these entrees posed for them, which strategies have worked best, and whether these factors vary by country.
The most striking feature of the South African research was that the majority of the companies surveyed were already significantly internationalised, with just under 40% of companies having made their first international sale in their first year of operation.
The mean export share of total sales was a high 42,3%, with international sales making up 40% or more of the total sales for just under half of the companies. This number remained the same regardless of the age of the company or the industry it belonged to.
Most companies were also pushing their export sales quite strongly, Wood said. Just under 30% of firms had at least doubled their international sales over 2000/2001.
The findings of the study also indicated that international incursions were expensive in a number of ways. It cost companies an average of 24% of a year’s revenue over the first two years to make it into an international market and demanded 33% of top management’s time.
At the same time, there is a 29% probability of being pushed out of a foreign market and a 40% probability that a company will not break even at the outset of the internationalisation process.
”Even the most gung-ho of entrepreneurs will agree this is not for the faint-hearted,” Wood said.
A surprising element of the research was that the United Kingdom and the US emerged as the most popular, and profitable, international markets for South African companies, with many of the firms also choosing to make these regions their first ports of call.
”This suggests to us that the US and the UK are serving as points of reference, that users in other countries are looking to see how a firm performs in these markets,” Wood said. – Sapa