Research Project GIBS MBA 2011/12 Research Project November 2012 Annie Lugube 11356881 Copyright © 2013, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. MBA 2011/12 Evaluation of Greenfield Strategies of Retailers in Sub Saharan Africa: A Two Case Study Approach ANNIE LUGUBE 11356881 A research report submitted to the Gordon Institute of Business Science, University of Pretoria, in partial fulfillment of the requirements for the degree of Master of Business Administration 7 November 2012 © University of Pretoria Research Project – Annie Lugube Page ii ABSTRACT This research seeks to provide a more concise understanding of multinational Greenfield strategies in emerging markets. A lot has been written pertaining to their conduct in established markets and this has proven inadequate as far as application to emerging markets is concerned. Scholars have developed theories on how multinationals operate but how practical are they on the ground? A two case study approach was seen as the most effective way to grasp the complexities involved in managing multinational firms in emerging markets. The scope was limited to sub Saharan Africa with two retail giants Shoprite and Game being the subject of scrutiny. Literature was developed on the basis of results of previous research and enhanced by in-depth interviews with top retail managers directly involved in the expansion process. Similarities and contrasts between the two firms’ strategies where examined with the aim of acquiring insights on retail Greenfield investments in emerging markets. The findings revealed that in emerging markets successful MNEs are the ones that target customers at the bottom of the pyramid whilst internalising risk and constraints within the context of institutional voids. KEYWORDS Retail, Greenfield Investments, Emerging Markets, Multinationals. Research Project – Annie Lugube Page iii DECLARATION I declare that this research project is my own, unaided work. It is submitted in partial fulfillment of the requirements of the degree of Master of Business Administration for the Gordon Institute of Business Science, University of Pretoria. It has not been submitted before for any degree or examination in any other university. ………………………………………. Date: Annie Lugube Research Project – Annie Lugube Page iv TABLE OF CONTENTS ABSTRACT ................................................................................................................. III KEYWORDS ............................................................................................................... III DECLARATION ........................................................................................................... IV TABLE OF CONTENTS ............................................................................................... V LIST OF TABLES ........................................................................................................ VI CHAPTER 1: INTRODUCTION .................................................................................. 1 Problem Definition .............................................................................................................................. 1 Research Aim ...................................................................................................................................... 3 CHAPTER 2: LITERATURE REVIEW ......................................................................... 5 Established Theories on MNE expansion ............................................................................................ 5 Proximity ........................................................................................................................................... 11 Critical Mass ...................................................................................................................................... 14 Logistics & Distribution .................................................................................................................... 14 CASE STUDIES ..................................................................................................................................... 22 CHAPTER 3: PROPOSITIONS ................................................................................. 26 CHAPTER 4: RESEARCH METHODOLOGY ............................................................ 28 Unit of Analysis ................................................................................................................................. 29 Sampling Method & Size .................................................................................................................. 30 Research Instrument .......................................................................................................................... 30 Triangulation ..................................................................................................................................... 32 VALIDITY ............................................................................................................................................ 32 CHAPTER 5: RESULTS ............................................................................................ 36 Game ................................................................................................................................................. 36 Shoprite ............................................................................................................................................. 41 Supporting Figures ............................................................................................................................ 45 Cross Case Analysis .......................................................................................................................... 50 ADDITIONAL FINDINGS ....................................................................................................................... 51 CHAPTER 6: DISCUSSION OF RESULTS ............................................................... 53 Critical Mass ...................................................................................................................................... 53 Effect of Proximity ............................................................................................................................ 56 Impact of Logistics ............................................................................................................................ 59 Discussion of Additional Findings .................................................................................................... 61 CONFIRMATIONS ................................................................................................................................ 62 CHAPTER 7: CONCLUSION & RECOMMENDATIONS ........................................... 66 Synthesis of Research Data ............................................................................................................... 66 Recommendations for Stakeholders .................................................................................................. 67 Scope for Future Research ................................................................................................................. 69 REFERENCES ........................................................................................................... 70 APPENDICES ............................................................................................................ 76 Research Project – Annie Lugube Page v LIST OF TABLES TABLE 1: DIFFERENCES BETWEEN EMERGIMG MARKETS & DVPNG ECONOMIES .............................................................................................................. 18 TABLE 2: STRATEGIES USED TO GENERATE MEANING ...................................... 34 TABLE 3: CROSS CASE PERFORMANCE COMPARISON ....................................... 50 TABLE 4: TRIANHGULATION OF DATA .................................................................... 52 Research Project – Annie Lugube Page vi LIST OF FIGURES FIGURE 1: RETAIL INTERNATIONAL PREDICTORS OF SUCCESS ......................................... 10 FIGURE 2: GAME’S SALES USD ..................................................................................... 48 FIGURE 3: GAME’S SALES USD (MOZAMBIQUE) ............................................................. 48 FIGURE 4: SHOPRITE SALES USD ................................................................................. 49 FIGURE 5: MODEL FOR INTERACTION WITHIN EMERGING MARKETS ................................. 68 Research Project – Annie Lugube Page vii CHAPTER 1: INTRODUCTION TO THE RESEARCH PROBLEM 1.1. DESCRIPTION OF THE PROBLEM AND BACKGROUND Modes of entry are alternative routes or means available to a firm for transferring resources from the home country to the host country (Malhotra, 2003). A company has to choose between non-equity modes, such as exporting and licensing, and equity based entry modes with full ownership or shared (Demirbag, Tatoglu, & Glaister, 2008). The authors further state that the second decision is whether to acquire an existing local firm (acquisition) or to create a new venture (Greenfield investment). For the purposes of this study, a Greenfield investment will be defined as a form of foreign direct