Factors driving the location investment decision of South African MNEs: Senior executives’ perceptions

Abstract

As trade barriers fell, South African enterprises faced new competition in their previously protected home market. With established markets becoming saturated, multinational enterprises (MNEs) steered towards emerging markets abroad. Geographically, South Africa is an intrinsic part of Africa, and psychic distance, defined as consisting of, interalia, differences in language, culture and business practices, can disturb the flow of business between an enterprise and the world. Physical proximity to countries makes it easier for enterprises to understand the culture and business practices, and reduces the uncertainty and risk of the new market. Perceived distance into Africa and elsewhere is also influenced by the specific consumer attributes and behaviours. Enterprises perform best inforeign markets where consumer behaviour is most receptive to a company’s goods and services. The study empirically investigated perceptions of psychic distance and foreign consumer factors in FDI decision making by senior executives of South African MNEs. The findings suggest that psychic distance is relatively unimportant and foreign consumer factors relatively important in FDI decision making.

Key words: Psychic distance, consumers, executive biographical factors, South African MNEs, senior executive perceptions