According to Kilic, Bayar and Arica (2014), theories explaining FDI inflows and outflows can be categorised into the following three groups: micro-level FDI theories, which include the oligopolistic markets theory, firm-specific advantages, and the ownership location and internalisation (OLI) theory. The aim of micro-level FDI theories is to try to explain why FDI is preferred by MNEs relative to other modes of entry, such as licensing and exporting; macro-level FDI theories, which are based on institutional analysis, exchange rate theory and capital market theory, amongst others. To explain the determinants and motivations of outward FDI, macro-level FDI theories view FDI as a form of capital flow between different world economies; and development theories, which incorporate theories such as the Japanese FDI theories and the product life-cycle theory.

The OLI theory is, however, most frequently applied in recognising, analysing and enhancing the understanding of the role of outward FDI in the global economy.

Whilst home country factors are responsible for driving domestic enterprises to seek for investment prospects elsewhere, it is a general principle that host countries that offer what foreign direct investors are seeking and host countries whose policies are most conducive to FDI activities have a better chance of attracting FDI (UNCTAD 1998). In this regard, two broad determinants, namely, push and pull determinants, shape the outward FDI decisions of MNEs.

The African retail sector is characterised by multiple semi-formal and informal retailers who sell mostly groceries. In fact, a report of 14 countries in SSA by Nielsen (2015) reveals that the informal retail sector accounts for approximately 50% of the region’s consumer expenditure on merchandises. The report further exposes that modern trade in SSA is still in its infancy and about 80% of consumers in the region conduct their shopping from traditional channels, such as table tops (i.e. roadside stands intended to capture passing consumers and local traders). For instance, Nigeria had only two shopping malls in 2012 and, although the country hosts a few of Africa’s most prominent supermarket chains, it has more than 700 000 traditional outlets for soft drinks alone (AT Kearney 2014).

Even though semi-formal and informal retail activities are dominant in the African retail sector, international and regional retailers are increasingly being attracted to Africa’s property markets and focusing on retail sector development. Price-waterhouse coopers (PWC 2013) expects a remarkable growth, at least until 2025, in the African retail market. This expectation is based on expanding demographics together with growing consumer demand. Validating the expectation of PWC (2013), the findings of Klynveld Peat Marwick Goerdeler (KPMG) (2015) attribute the expeditious economic growth and demographics in Africa to the expectation of increased consumer spending.

In terms of Africa’s retail trade inward FDI, Figure 2 shows that a large proportion of the investments in 2018 were received by Morocco, South Africa, Mauritius and Egypt. Morocco, for instance, received 323 retail foreign affiliates and 220 retail parent companies in 2018 alone. This is, however, fewer in comparison with South Africa, which received 319 retail foreign affiliates and 258 retail parent companies during the same period. A very small proportion of the retail trade inward FDI is received by countries, such as Zimbabwe, Madagascar, Malawi and Ethiopia. The numbers of foreign affiliates received by these countries range from 24 to 32, whilst the numbers of parent companies range from 20 to 23. It is surprising though to find Ethiopia in the same category as countries, such as Malawi, Madagascar and Zimbabwe, given its impressive level of economic growth over the past few decades.

Africa’s retail outward FDI, in contrast, originates mainly from South Africa and Mauritius (see Figure 3). These two countries account for a larger proportion of Africa’s outward retail foreign affiliates and retail parent companies. For instance, 114 retail foreign affiliates and 66 retail parent companies originated from South Africa in 2018. Likewise, 91 retail foreign affiliates and 56 retail parent companies originated from Mauritius during the same period. The numbers of both retail foreign affiliates and parent companies originating from all the other African countries, during the year 2018, range from 0 to 34.

Nonetheless, entering the African retail market is not free from challenges. In this regard, foreign direct investors are likely to encounter the following barriers (Coetzee, Bezuidenhout & Mhonyera 2020): political and economic instability; poorly developed infrastructure; weak industrial and manufacturing base; lack of policy consistency; differences in consumer behaviour; cultural differences; and fragmented retail markets. Therefore, in order to make inroads into Africa’s retail market, investors ought to meticulously examine the nature and geographical locations of trade outlets in potential host countries, the type of products they offer, the size of the host market and the characteristics of their targeted clientele. Furthermore, potential foreign direct investors should analyse the accessibility and potential revenues of each outlet and create an effective as well as profitable product distribution strategy.

South Africa has a highly developed retail market, which is considered to be on par with some of the world’s most developed countries. A substantial portion of the South African economy is driven by consumer spending. Consequently, retail sales are used as an essential economic indicator (Cooke, Prabu & Steele 2016). As an outcome of its large impression on urban and rural areas, the South African retail sector also contributes to the sustenance of many South Africans by employing a significant number of the country’s labour force. In fact, the sector has the potential to create sustainable employment and to integrate untrained workers in the country through training them, on the job, to become cashiers and merchandisers in stores (Malgas, Khatle & Mason 2015).

Although South Africa possesses a highly developed retail sector, the country’s retail market is highly saturated. This is supported by Malgas et al. (2015) who stated that the South African retail sector highlights a mature market with a high concentration of a small number of large retailers, such as Shoprite. Therefore, in terms of retail expansion, African countries such as Nigeria would be a better option in comparison with South Africa. In fact, the saturation of the domestic retail market has led to an increase in the number of South African retailers establishing retail outlets in other African countries.

The combined footprint of the five major South African retail enterprises, considered in this article, with FDI in Africa is shown in Figure 4. It is apparent that South African retail already has a substantial footprint in the African continent, and the country’s FDI footprint is concentrated in the Southern and Eastern countries of the SSA. Furthermore, the majority of the SSA countries in which South Africa’s retail investments are dominant, are members of the Southern Africa Development Conference. In addition to its footprint in Africa, one of the South African retail enterprises, Spar, has retail operations in Europe (i.e. Ireland, England and Switzerland) and in one of the Asian countries (i.e. Sri Lanka). Similarly, Woolworths has retail operations in Oceania (i.e. Australia and New Zealand).

When making inroads into the African market, these major South African retailers (see Figure 4) exploit retail markets that have been characterised by large open-air markets and informal trading activities (Dakora, Bytheway & Slabbert 2010). Other foreign market entry modes employed by South African retailers include franchising and partnerships. However, the inclination is commonly towards full ownership, unless that is prohibited by the domestic laws of the particular host country (Games 2008).

This research article utilises a mixed-method research technique to identify the determinants of outward FDI decisions of five major South African retail enterprises with a significant FDI footprint in Africa. As mentioned above, the emphasis is on establishing the extent to which push and pull determinants define South African retail sector outward FDI and the challenges faced by South African retailers when investing in Africa’s retail sector. Similar to Coetzee et al. (2020), the mixed-method approach involved: (1) an in-depth case study of each of the five major South African retail enterprises considered in this article; and (2) semi-structured interviews conducted with the respective retail enterprise officials responsible for expansion into Africa.

The multiple case study approach makes it possible to establish the determinants that influence outward FDI decisions of major South African retailers investing in Africa and the challenges they faced when investing in Africa’s retail market. According to Niewenhuis (2010), multiple cases are necessary to answer the ‘why’ and ‘how’ questions. Furthermore, a multiple case study provides a stronger base for theory building and allows for comparisons across various cases (Kreppel 2012). Similarly, the multiple case study approach allows for an understanding of the uniqueness of a case in all its complexity (Yin 2009). According to Coetzee et al. (2020), a case study does not always have to be a person as it can also be in the form of publications, documents, press releases, emails, letters and so on.

The semi-structured interviews used in this article are based on the following paradigms: ontological position, which assumes that individuals’ interpretations, views, experiences and knowledge are important components of the social reality that the research questions intend to examine; epistemological position, which implies that data and knowledge can be generated through talking interactively with people, asking questions and listening in order to gain insights into their personal experiences; the belief that knowledge and evidence are situational, interactional and contextual, which justifies that interviews draw upon the social experiences; and the interpretive paradigm, which motivates for the use of multiple data sources and analysis methods to achieve validity.

Semi-structured interviews allow for flexibility. In this regard, how and when a question is asked are determined by the direction of the interview and not the order in the guideline. For example, if a question is answered before it is asked, it will be skipped in the interview (Bailey 2007). The flexibility of semi-structured interviews is also confirmed by Simmons (2009), who stated that interviews facilitate probing on a topic and changing the direction to pursue emergent issues. However, for semi-structured interviews to be successful, the researcher must ensure that the necessary preparation is conducted before the interview, more creativity and discipline exist during the interview, and that sufficient time is dedicated for analysis and interpretation after the interview (Wengraf 2001).

In order to create questions that would answer relevant issues, the interview questions were compiled by referring to the objectives that this article seeks to achieve. To allow for the disparities in individual retail enterprises, open-ended questions were used. The questions were grouped into the following categories: (1) background of the retail enterprise, structure and management of its investments in Africa; (2) strategy, which focused on the retail enterprise’s specific advantages in Africa; (3) South African retail environment and its role in investment decisions; (4) investment, which focused on how factors such as infrastructure, collaborations with other firms and associated investment risks influence an enterprise’s decision to invest in Africa; and (5) current and future plans in which questions were designed to obtain responses on the enterprise’s current plans and views of long-term investments in Africa, as well as countries worth investing in.

Prior to conducting the formal interviews, a successful pilot test was conducted with retail experts in order to ensure validity and reliability of the research instrument. In other words, this was performed in order to verify the easiness of comprehending the interview questions and whether the questions would induce the necessary responses required to obtain as much data as possible.

The collected desk research and the semi-structured interview data were used to compile the final findings presented in this article. Therefore, in order to organise and prepare the data for analysis, the data obtained from desk research were typed and the audio recordings from the semi-structured interviews were transcribed. After cautiously reading through the organised data to obtain a general idea of what the data were indicative of, it was organised into categories, and a theme (see Figures 5 and 6) was allocated to each category (i.e. coding).

Ethical approval to conduct the study was obtained from the North-West University, South Africa (Ethical clearance number: EMS16/07/21-04-02) on 12 August 2016.

As shown in Figure 5, all of the major South African retailers consider market-seeking as an extremely significant push determinant when making their FDI decisions. Hence, the saturation of the South African retail market plays a major role in motivating domestic retailers to expand further north into other African countries. The African market offers South African retailers new, untapped formal retail markets with less competition from other formal retailers relative to the home market. As the South African retail market has increasingly become saturated for most retail categories, expanding into Africa is also regarded as a strategic move aimed at creating future retail markets and generating sustainable retail commercial activities. However, retailers such as Shoprite, that also specialise in health and beauty products, acknowledge that there are still voluminous growth opportunities for such retail categories in the domestic market.

Whilst Spar considers the resource-seeking push determinant as moderately significant in its outward FDI decisions, all the other retailers regard the determinant as slightly important. The retailers, however, accept that the resource capabilities of a potential host country play a major role in the selection of a country for retail outward FDI. This emanates from the fact that natural resources drive most African economies.

Efficiency-seeking is considered as a significant determinant for outward FDI decisions by all the retailers, with Retail Z regarding the determinant as extremely important in its outward FDI decisions. Contrary to the theories that point internationalisation to the derivation of benefits from economies of scale, the retailers indicated that they do not prioritise economies of scale in their outward FDI decisions. Instead, they rely on central distribution networks in the regions. In fact, most of the goods traded by the respective retailers in the African countries that they are located in do not originate from South Africa. For instance, South African products constitute little merchandise of Retail Z in its foreign retail outlets.

Strategic asset-seeking is regarded as a moderately significant, outward FDI determinant by Spar, Retail Z and Woolworths, whilst Shoprite and Massmart consider the determinant as significant in their outward FDI decisions. The retailers require some strategic assets in order to augment the ownership advantages required for their long-term expansion plans into the African continent. Such strategic assets can be pursued in the spheres of distribution and supply chain management.

Ownership advantages are considered as a significant determinant by all the five retailers. Compared with domestic retailers in the African host countries they invest in, South African retailers possess ownership advantages, such as company size, and business and organisational intelligence. Accordingly, since there is an increase in outward FDI from South Africa, despite inward FDI surpassing outward FDI, the country falls in stage 3 of the IDP theory (see Figure 1). The retailers highlighted that their retail experience coupled with their respective own branding grants them a competitive edge over local retailers in most of the African countries they possess FDI in. Shoprite, for instance, sells its own brand in stores at competitive prices and ensures that its brand is viewed as that of the specific host country instead of being viewed as a South African brand.

In terms of pull determinants, all the five major South African retailers consider market size as a significant determinant in their outward FDI decisions (see Figure 6). As Africa is amongst the fastest growing markets globally, with a young population and rising household income, the retailers acknowledged that the continent offers an attractive and extremely untapped potential formal retail market. In addition, investing in countries with a large and young population can possibly be viewed as strategic and assists in securing future retail markets for their retail enterprises.

The political and macro-economic environment also plays an integral role in the process of selecting potential host countries. With the exception of Retail Z and Shoprite, which view this determinant as moderately significant, all the other retailers view political and macro-economic stability as significant in their outward FDI decisions. However, retailers such as Shoprite maintain that it is beneficial to not hold political agenda and not to participate in the domestic political affairs of the host country.

The availability and costs of labour are considered as significant by Retail Z, whilst all the other retailers regard the determinant as moderately significant. The retailers recognise that the labour costs in South Africa are already relatively high compared with most of its African counterparts. In fact, favourable labour practices in other African countries, particularly low wages, have lured some of the South African retailers to invest in the continent. Whilst Africa’s labour force is growing, in countries where the expertise required is not available, retailers such as Shoprite move into the host country with skilled personnel from South Africa and train local personnel on the job.

There are mixed considerations with regard to the importance of the availability of infrastructure in outward FDI decisions of the five major South African retailers. Spar regards this determinant as significant in its FDI decisions. Woolworths and Massmart, however, regard the availability of infrastructure as moderately significant, whilst Retail Z and Shoprite consider the determinant as slightly significant. For Retail Z and Shoprite, in particular, lack of infrastructure such as roads, water and electricity does not stop the retailers when deciding to invest in Africa. This is because the retailers initially target major cities and make use of backup plans such as investing in own boreholes, water purification plants and generators.

Nevertheless, infrastructural development has been identified as an important factor in attracting retail inward FDI. For example, Rwanda upgraded its road system, and this has made the country a regional coordination centre for East Africa (Global Perspectives 2014). Likewise, developments in Ethiopia’s infrastructure, such as roads, power and telecommunications, have resulted in exponential growth in its retail sector (AT Kearney 2014).

Profitability and growth prospects in the host country are considered as significant in the outward FDI decisions of Shoprite and Massmart. The rest of the retailers regard this determinant as extremely significant. Whilst there is a consensus amongst the retailers that the motive for retail outward FDI can be singled out as the desire to make profits, retailers such as Spar do not require a retail outlet in a host country to be profitable in the short-term for it to be thought of as a worthwhile investment. Therefore, if a country has the potential to generate profits and offers growth prospects in the long run, it will be considered for investment.

All the major retailers consider the trade and investment openness determinant as significant in their retail outward FDI decisions. The retailers revealed discrepancies in investing in countries bordering South Africa and those that are further away. For instance, the trade and investment agreements between South Africa, Botswana, Lesotho, Namibia and Swaziland make it much easier for South African retailers to set-up retail outlets, as well as for consumers from these countries to easily adapt to South African trends. In contrast, customs and taxation practices for countries further away from South Africa make it difficult for South African retailers to penetrate those retail markets. In addition, some countries might demand certain after-tax contributions aimed at local supply and skills development, as well as corporate social investment.

Amongst other pull determinants, property developers also play a critical role in shaping the investment decisions of some of the South African retailers. For instance, the retailers highlighted that they are sometimes approached by property developers such as RMB Westport to determine their willingness to conduct retail operations and lease space at shopping malls that the developers wish to develop in identified African countries. Prior to approaching the retailers, the property developers conduct market research to find viable sites and potential retail markets. In some cases, retailers and developers also engage in joint ventures to build shopping centres. Such joint ventures include Resilient Africa (a joint venture between Standard Bank and Shoprite), which involves developing of shopping malls that do not exceed 14 000 m² in Nigeria (Mhlaka 2015).

Investing in Africa’s retail markets is not free from challenges. For instance, the major South African retailers noted that most of the domestic retailers investing in Africa are pioneers of formal retail in most countries they invest in. This generates risks such as reluctance of customers to shift from their local informal markets to purchasing merchandise at formal retail shops. In addition, customers in some of the African countries, such as Egypt, are loyal to their own brands and people. Therefore, they would rather buy from another domestic retailer instead of supporting a foreign-owned retail outlet.

The political instability and bureaucratic procedures also constrain the ease of business operations in some African countries. Consequently, the level of uncertainty and corruption is amplified, with some countries requiring inducement of administrative officials in order to conduct business operations in such countries. Even in some cases in which corrupt tendencies are not rife, bureaucratic procedures (e.g. surrounding the expropriation of profits and requirements for doing business) in certain African countries culminate in increased operational costs and reduce the willingness of South African retailers to invest in such countries.

For some of the major South African retailers such as Retail Z and Shoprite, the lack of infrastructure such as roads, railway, telecommunication, internet, water and electricity has little influence on their investment decisions. This is because they mainly invest in major cities, which have better services or advanced back-up plans, such as self-sustaining malls equipped with water purification plants, generators and roads to the malls. However, this makes investments more expensive for some retailers and limits the geographical locations that they can invest in.

Another key challenge faced by South African retailers when investing in Africa is foreign currency deficit or convertibility risk. This normally occurs when the central bank of the host country is unable to organise the necessary foreign currency reserves required to convert local funds into foreign currency in order to allow the South African retailers to repatriate their profits to South Africa. Moreover, if the host country’s currency depreciates, intermediate inputs and warehouse supplies become more expensive.

Other challenges faced by South African retailers when investing in Africa include: macro-economic instability in some African countries such as Zimbabwe, transaction costs in the form of high tariffs that most African countries charge for the importation of goods into their territories, decline in purchasing power of oil-based economies such as Angola and Nigeria because of fluctuations in oil prices in recent years, divergences in South Africa’s customs and taxation practices with those of African countries further north, differences in rules and regulations (e.g. various liquor laws across the continent), and cultural and language barriers experienced in a number of African countries.