by Mannie Hirsch on 17/10/12 at 3:00 pm
It is often said that the world has become a global village. It is therefore much easier today to operate in various countries simultaneously. The challenge for multinational companies is to align business strategies with corporate governance within each country’s local culture and legislation. While such multinationals bring investment into the country and often assist in creating jobs there are certain regulations that could impact on their operation in SouthAfrica.
Multinational Companies are, although with more flexibility, bound by the South African legislation and corporate governance provisions.Complying with the ownership component of the BEE scorecard therefore becomes a challenge and multinationals have to look towards enterprise development, corporate social investment, employment equity and skills development to improve certification levels. The implementation of these scorecard elements will force multinationals to change the way in which smaller entities are treated.
A good example of this is the rubber industry in Cameroon, where poverty stricken farmers are producing rubber which is then controlled by the export company, while the export company is 35% owned by government according to legislation. In this process the welfare of the farmer becomes secondary to the shareholder interests. The buyer power is huge and the farmer has no choice but to accept whatever price is offered, lest the multinational refuse to buy from him and his livelihood is taken away. With government and the multinational in partnership, smaller entities are left without any support or protection.
In South Africa there are similar examples where government partners with or procures from multinationals and smaller local companies and communities are left defenseless. Often this makes business sense as the Asian or Western countries have the technology, management and money needed by government to grow the country’s economy. The problem is when local technologies and expertise available are ignored in favour of multinationals and budgets that could have been applied in South Africa to the benefit of its people are handed over to
The fishing industry is another example. Fish is a national asset, which can either be exploited or grown, yet fishing rights are handed to international companies and salmon is being imported in large quantities. The technology and expertise exist in South Africa to grow top international grade salmon; within two years it is possible to produce 200 tons of salmon in South Africa in a controlled environment. A possible South African model is for government to supply funds and technical partners while involving local communities and employees against orders secured. Companies partnering with South African entities will gain CSI, Enterprise development and procurement point on their BEE scorecard.
Similarly in the South African agricultural world, farmers could be supported and production increased to a point where it is not necessary to import food from Brazil and China. Expanding on the agricultural and food and beverage industries in South Africa would create jobs and ownership. There are models of expanding on ownership in agriculture without giving farms to people with no farming or business experience. Agricultural training opportunities can equip newer farmers with skills and knowledge while also creating entrepreneurial opportunities for training entities. Agricultural opportunities can be used to grow community businesses.
However, potential farmers should be led not to start by saying ‘I have land and want to farm’, but to determine where opportunities and needs exist. The technology exists to reduce farming risk, for instance, through hydroponics. Investment in such technology can be made when orders are in place. Such orders can be international which will lead the country to export rather than import. South Africa has the ideal climate for farming, which is another asset that can be turned into business opportunities.
The aircraft industry is one of South Africa’s most important sectors, but a very small component of parts is manufactured or procured locally, mostly being imported from China. While price and economy of scale will definitely play a part here, local commitment should form part of the procurement policy for Africa in order to benefit local communities and create employment and economic empowerment. This will enhance industrialisation and grow the manufacturing industry in South Africa to free South Africa from the buyer power yielded by the multinationals.
Mannie Hirsch is the chairman of Gestalt Group and sits on the boards of most of its subsidiaries and associate companies. Today Gestalt is in the forefront of the development of black empowerment enterprises in South Africa. View more articles by Mannie Hirsch.