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Publication Date: April 25, 2021
DOI:10.14738/abr.94.9521. Ogbor, J. O., Iyamabhor, M., & Awosigho, O. P. (2021). David Versus Goliath: The Competitiveness of Africa’s Local Enterprises in
The Global Economy. Archives of Business Research, 9(4). 160-179.
Services for Science and Education – United Kingdom
David Versus Goliath: The Competitiveness of Africa’s Local
Enterprises in The Global Economy
OGBOR, John O.
Faculty of Management Sciences, Delta State University, Asaba Campus
Asaba Delta State, Nigeria
IYAMABHOR, Martins
Faculty of Management Sciences,
Department of Business Administration and Marketing, Delta State University
Asaba, Delta State, Nigeria
AWOSIGHO Onome Precious
Faculty of Management Sciences
Department of Business Administration & Marketing, Delta State University
Asaba, Delta State, Nigeria
ABSTRACT
As a result of the dynamics of globalization, the variegated economies of the world
have become more homogenous, integrated, interrelated and interdependent.
However, rather than becoming a veritable player in a network of interrelationship
and interdependency, the African economy has increasingly become a powerless
spectator in the theatre of globalization. Although there is a great deal of literature
and research in this area of international business, most of it has concentrated on
the multinational corporations and their effects on the host country’s economy.
Research and literature in this field have mainly looked at protective measures and
subsidies as the way out of foreign competition; it has rarely addressed competitive
strategic responses of local firms to foreign multinational corporations operating
in the local economies. Anchored on the resource-based view of the firm and the
network interaction theory, the paper provides an alternative framework or a
paradigm shift for analyzing the competitive options available to Africa’s local firms
in a global market. From this paradigm shift, the competitive advantages of Africa’s
local firms are conceptualized to be (i) a function of firm specific assets and (ii) the
prevailing home market conditions. The method of inquiry adopted in this paper is
textual deconstruction. The major contribution of this study to the existing
globalization discourse is its shift of focus from the multinational corporation to the
analysis of global competition from the perspective of the competitiveness of
enterprises in less developed economies such as Africa. The suggested framework
and paradigm shift can also be used by scholars to map strategic options for local
enterprises in selected markets. Future research can subject the suggested
framework to empirical scrutiny to see how well the arguments hold.
Keywords: Global economy, Globalization, MNCs, Competitive Advantage, Africa’s
Enterprises, Firm Specific Assets and Home Market Conditions.
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Ogbor, J. O., Iyamabhor, M., & Awosigho, O. P. (2021). David Versus Goliath: The Competitiveness of Africa’s Local Enterprises in The Global
Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
PREAMBLE: DAVID VERSUS GOLIATH - THE COMPETITIVENESS OF AFRICA’S
ENTERPRISES IN THE GLOBAL ECONOMY
In 1Sam 17, the Hebrew Bible recounts the heroism of a bold young boy named David who fights
against Goliath, a Philistine giant. Even though he is untested, David defeats his experienced
and somewhat cocky opponent.
Seen from the angle of strategic management and especially in the context of firms’ competitive
advantage, the story has some implications for how small companies can compete and defeat
larger multinational enterprises in the battle field known as “the global economy” where firms
must fight (compete) with each other in order to conquer markets. In the field of marketing, it
is about how small companies with limited resources can use guerilla marketing tactics to
capture terrains already occupied by much larger firms. In this biblical narrative, we see Goliath
in terms of the more experienced Western and Southeast Asian countries of India, China
(formerly known as the “Sleeping Giant”), Japan and the “Four Asian Tigers” (i.e., the economies
of Hong Kong, Singapore, South Korea and Taiwan).
The story of “David and Goliath” and how the little Israelite had defeated the giant champion of
the Philistines is by design, not by chance. David knew what his strengths were. David didn’t
play Goliath’s game. He played his own game. Collectively, these Western Power Houses and
their Southeast Asian counterparts are the giants in the theatre of the global economy.
Collectively, too, they dictate the rule of competition (the battle rules) in the global economy
(the battle terrain). They not only dictate the rules; they also enforce them through global and
supra-national organizations established by them to regulate the conduct the process and
structure of the global economy. These giant institutions, such as the World Bank (WB), the
International Monetary Fund (IMF), the World Trade Organizations (WTO), etc, are specifically
set up as instruments for global economic surveillance. The giant economies have the
competitive arsenal or resources at their disposal; they are equipped with the armor of
technology, with powerful multinational and global enterprises. Sometimes, they, like the giant
Goliath, can be as cocky opponents; their leaders describe African countries as “shit-holes” or
“good-for-nothing” economies; or else as products of “banana republics” (Chapman, 2009). “A
banana republic”, to be sure, is a small state that is politically and economically unstable as a
result of the domination of its economy by a single export controlled by foreign capital. These
countries, which occupy the lower level of the economic ladder, are in perpetual need of foreign
financial assistance to survive; they are not competitive as they have been written off as
dumping grounds for Western left-over.
Several critical scholars from the anti-globalization camp have noted that the purpose of the
globalization “project” is the attempt by Western economies to create an economic space where
everything should converge in the direction of the dictates of Western needs. The project is to
be carried out mostly by large scale Western-based organizations. For instance, Ogbor (2002a),
in his work, From Spectacle to Surveillance and the Making of the Global Subject, makes the case
that the globalization process culminating in the global economy requires large-scale
organizations to deliver mass products to mass markets, consumers, and publics. He argues
that one of the reasons for globalization’s expansion lies in the functional necessity for large- scale organizations to ensure their own survivability. The global economy and the globalization
process thus imply what Marcuse (1964) calls the “conquest and unification of opposites”. In
this attempt to unify the opposites by the “Goliaths” of the global economy, the weaker
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“opposites” (i.e., African economies), argues Ogbor (2002b, pp. 524-526) “become mere
spectator in the theatre of the global economy.”
The much smaller local firms in African are often described as the little “David” in the Hebrew
bible; they have a weak economic and financial base to compete in the global economy with the
giant multinational enterprises; they are small and will remain small due to insufficient
resources (human, financial, labor, infrastructure, technology, etc.). Till date, African
economies are known as producers of commodity products or raw materials, while the
economic giants in the US, Europe and Southeast Asia are manufacturers of finished products.
With the notable exception of very few companies (e.g., the Dangote Group and South African
owned power houses such as MTN, Shoprite, PEP stores and Multichoice DSTv.), African local
enterprises have been incapable in facing the competitive forces of the Western multinational
giants. For several decades, policy makers in Africa have been confronted with crucial
challenge, among several others, that is, “for how long will this continue? What strategic options
do African countries or its local firms have at their disposal to fight the economic giants and
perhaps conquer their ‘lost territories’”? Until David, the little Shepherd boy, arrived in the
scene, and by using the small weapon at his disposal and with great confidence (his faith in his
God), he aimed at where Goliath was most vulnerable. While interpreters of this narrative use
the story of David and Goliath for its underdog overtones (the little guys win), there are rich
subtleties of this biblical story that writers of all stripes can use. For example, David leaves
behind his armor when he fights the militantly attired Goliath. Where Goliath is heavily armed,
David had a home-made crude weapon in the form of a sling and a stone. David is modest, but
Goliath brags and taunts.
THE COMPETITIVENESS OF AFRICA’S FIRMS IN THE GLOBAL ECONOMY
Research and contemporary studies on the competitiveness of Africa’s domestic firms in the
global economy has been accentuated in recent years. This growing interest can be attributed
to the perceived disadvantageous position occupied by Africa in the globalization process or
“project”. In fact, some researchers have termed Africa’s participation in the global economy as
mere spectators in the theater of the process of globalization (Ogbor, 2002a). In line with this
reasoning, there has been an increasing interest and focus on the particular impact globalizing
processes has on the economies of developing nations, especially Africa. In one way or the
other, globalization has always affected Africa. Although, the ubiquitous global economy is seen
as beneficial to the economies of many parts of the world, African countries have palpably failed
to take advantage of the opportunities offered by the globalized economy of the twenty first
century: they receive little foreign investment, fail to produce many processed goods for export,
and are less “wired” than almost any other region of the world (Jensen, 1996; Ogbor, 2020;
Ogbor & Orishede, 2015a; Ogbor, 2015b; Ogbor, 2002a; Ogbor, 2002b).
But not all scholars or observers of the African economy in the context of global
competitiveness are satisfied with that type of explanation. Scholars sharing an optimistic view
argue that despite their overall poor performance, a few African nations are now poised to take
advantage of the new global economy while, at the other extreme, there are a significant
number of countries that are simply trying to preserve their basic institutions with little hope
of successful engagement with the world (Adeleye & Esposito, 2018; Amankwah-Amoah, 2018;
Ogbor & Orishede, 2015). From the point of view of these researchers, studies should focus on
what Africa’s enterprises have to offer in the global economy. This line of research draws its
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Ogbor, J. O., Iyamabhor, M., & Awosigho, O. P. (2021). David Versus Goliath: The Competitiveness of Africa’s Local Enterprises in The Global
Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
inspiration from the resource-based view of the firm____a theoretical framework that looks at
the resources at the disposal of firms. But, as Ogbor (2002a) puts it, what African economies
can offer in the present disposition is subjection to the dictates of the global economy.
Whatever the case may be, recent studies in the tradition of strategic management and firms’
competitiveness, are beginning to explore strategic options at the disposal of Africa’s local
enterprises in the global economy. In addition, there is a growing awareness that an
understanding of the forces shaping the competitiveness of Africa’s local enterprises in the
global economy could yield a whole lot of data capable of understanding why African economies
are subjected to the darker side of globalization. And there is more to it than that. By analyzing
the processes and structures of the global economy, scholars and policy makers will be moved
from the tradition of seeing Africa’s local firms as mere spectators in the globalization project
towards a position which digs into the deeper intricacies of how local firms can mobilize the
resources at their disposal to achieve competitive advantage.
In the discourse on globalization and the global economy, scholars and practitioners are by now
familiar with the general African economic situation that a comprehensive exposition is
unnecessary here. The continental performance has been poor: Africa overall has generally not
even returned to the economic peak of the late 1970’s when all natural resource prices were
relatively high. While the continent was experiencing the “lost decades” of the 1980’s and
1990’s, other regions were, of course, making spectacular gains.
From a comparative perspective, the differences in economic performance, according to Court
and Yanagihara (2012), can be found in manufactured export performance between Southeast
Asia and countries in Africa. According to the researchers, “the proportion of manufactures in
exports was relatively similar in Southeast Asia and Africa in 1970, in some cases African
countries were markedly better off. However, since then there has been a rapid and sustained
increase in the proportion of manufactured exports in all three countries in Southeast Asia. In
Africa, there has not been much increase except for Mauritius, where it was even more
pronounced than in SE Asia” (Court & Yanagihara, 2012). That the poor overall economic
performance of Africa in the global economy inevitably affects how Africa integrates into the
global economy is an understatement. While, for the most part, the African continent remains
a producer of relatively unprocessed raw materials, Asian countries have totally transformed
their industrial production becoming producers of consumer good.
There are many reasons for Africa’s poverty vis-à-vis other regions: the poor colonial
inheritance, especially in the area of dependence on the exportation of raw materials (Austin &
Chibuike, 2007; Moradi, 2008; Smith, 1994); crisis of governance and administrative
incompetence (Adams & Mengistu, 2008; Reynolds, 1995); poor policy implementation such as
the implementation of structural adjustment programs (Adam & O’Connell, 2006; 1997; Ogbor,
1994); .political instability and civil conflicts (Easterly & Levine, 1997; Ilorah, 2009; Pearce,
Islam& Sauvant, 1996); poor debt management and misallocation of financial resources
(Chipumbu, 1993); ethnic bias, bribery, corruption and favoritism (Fadahunsi & Rosa, 2002;
Ifediora, 2005); external circumstances (Ayenagbo, Wenguing, Rongcheng & Nguhi, 2012) and
poor policy implementation and institutional constraints (Ogbor, 1994).
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According to some analysts, the most serious barriers to Africa participating in the global
economy are (i) the dependency syndrome in raw material exportation and the concomitant
dependency in the importation of Western/Asian processed goods and (ii) the crisis of
governance. To be sure, “import and aid dependency syndrome” is an attitude and belief that a
group (e.g., a country or an economy) cannot solve its own problems without the importation
of goods and services or outside help such as financial assistance and grants.
The World Bank and the International Monetary Fund (IMF) have a policy thrust whereby poor
and developing countries are recommended to adopt the policy instrument of export
promotion in which they are required to export more of their primary products that would help
them raise foreign exchange which is necessary for the repayment of their debts. However,
some observers have argued that this policy has worsened the competitive position of
developing and poor nations and deepened their dependency on the Western economies. Smith
(1994, p. 127) suggests that developed countries grow rich by selling capital-intensive products
for a high price and buying labor-intensive products for a low price. This imbalance of trade
expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to
produce. This maintains the monopolization of the tools of production, and assures a continued
market for the product. This, according to Robbins (1999, p. 95), represents a type of
exploitation called unequal exchange.
Thus, one of the effects of the policy of structural adjustment is that developing countries must
increase their exports. Usually, commodities and raw materials are exported to Western
developed nations. But as Smith (1995) asserts, developing countries lose out when they export
commodities (which are cheaper than finished products) and are denied or effectively blocked
from industrial capital and real technology transfer. This economic policy reproduces and
reinforces a pattern of unequal development that favors the industrial economies to the
detriment of developing ones. Yet, this is not new, because as Ogbor (2009, p. 106) asserts,
Historically, this has been a partial reason for dependent economies and poor
nations to remain perpetually dependent on the dictates of the economies of the
developed nations. This was also the role forced upon former countries under
colonial rule. In today’s more globalized economy, we see the less developed
economies finding themselves in the same uneven pattern of trade: export
commodities to west and import finished products from the West.
The economic assumptions of the World Bank and the International Monetary Fund had been
premised on the logic that exporting raw commodities and resources would favorably help
developing countries earn foreign exchange with which to pay off debts and keep currencies
stable. However, partly due to the price war, which can induce a situation where developing
countries produce more of raw materials, commodity prices have always dropped in the world
market relative to prices paid for manufactured products. In addition, Tan (2002) argues that
falling commodity prices have meant that large increases in export volume by commodity
producers have not translated into greater export revenues, leading to severely declining terms
of trade for many commodity producing countries. For example, when the purchasing power of
a country’s exports declines, the country is unable to purchase imported goods and services
necessary for its sustenance.
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Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
Secondly, the country that exports commodities is unable to generate enough income for the
implementation of sustainable development programs. A vast majority of Sub-Sahara African
countries depend on the exportation of raw commodities as a main source of revenue. Tan
(2002) suggests that primary commodities account for about half of the export revenues of
developing countries and many developing countries continue to rely heavily on one or two
primary commodities for the bulk of their export earnings. Furthermore, a fall in commodity
prices has also led to a build-up of unsustainable debt. The consequence of all these is that
Africa, for the most part, has remained a consumer of manufactured products from the West.
As Ogbor (2009) puts it, an economic environment that encourages commodity export rather
than manufactured goods is hardly an environment for the growth of the local economy in the
context of industrialization.
In a nutshell, the above stream of research seems to suggest that what the IMF, the World Bank
and the developed countries recommended as solutions to the problems of developing
countries is contrary to what they had adopted in the process of their economic development.
As Smith (1994, p. 141) notes, every rich nation today has developed because in the past their
governments took major responsibility to promote economic growth. There was also a lot of
protectionism and intervention in technology transfer. There was an attempt to provide some
sort of equality, education, health, and other services to help enhance the nation. Smith (1994)
argues that the industrialized nations have understood that some forms of protection allows
capital to remain within the economy, and hence via a multiplier effect, help enhance the
economy. Yet, in the global economy and in the policies enshrined in the globalization process,
the developing nations are effectively being forced to cut back these very same provisions that
have helped the developed countries to prosper in the past.
As earlier pointed out, crisis of governance is seen as one of the obstacles militating against
Africa’s economic development in the context of the global economy. In general, African
countries lack the policy and legal frameworks to achieve sustainable economic development
and growth, although there are significant variations across the continent. It has been argued
by many observers that unless the governance issues are solved, Africa will not be able to
overcome all of the other problems that keep it from developing (Magbadelo, 2018; Makinda,
2012.).
In essence, the discourse on governance proposed eight principles or characteristics: (i) rule of
law, (ii) transparency, (iii) responsiveness, (iv) consensus oriented, (v) equity and
inclusiveness, (vi) effectiveness and efficiency, (vii) accountability and (viii) participation. The
uneven economic development pattern in most parts of Africa is explained against the backdrop
of the absence of these principles.
The summation of all the above factors, import dependence, governance or not, Africa’s local
enterprises have been gravely incapable of taking advantage of its local resources in order to
gain competitive advantage in the global economy. As pointed out earlier, the fundamental
challenge facing Africa’s economic development in the context of global competitiveness is:
what are the strategic options available to Africa’s local enterprises in the global economy and
what forms should those options take? To attempt answers to this question, we have to look
unto the theory of Resource-based view of the firm and the Network/Interactive Theory as
theoretical framework.
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THEORETICAL FRAMEWORK AND OVERVIEW
The chosen framework for analyzing the competitiveness of Africa’s local enterprises in this
paper is an integration of contributions from the resource-based view of the firm (RBV) (Foss,
1997; Peteraf, 1993) and the network interaction theory of industrial marketing (Ford, 1990).
The RBV’s major point of departure is the assumption that the competitive advantage of firms
is based on the firm’s resource portfolio rather than the firm’s product market. It is based on
four basic assumptions. First, it assumes that there are systematic differences across firms in
the extent to which they control resources that are necessary for implementing strategies.
Second, these differences are relatively stable. Third, differences in firms’ resource
endowments cause performance differences. Lastly, firms seek to increase (maximize) their
economic performance. This framework suggests that firms may secure a strong performance
by building or otherwise acquiring certain endowments of resource: It draws attention to the
creation, maintenance and renewal of competitive advantage in terms of the resource side of
the firm.
For a firm’s resources to yield competitive advantage they should meet four basic criteria
heterogeneity, ex ante limits to competition, ex post limits to competition and imperfect
mobility (Peteraf, 1993). Heterogeneity means the resource must be rare for it to have
competitive advantage leading to efficiency differences and therefore rents. Ex ante limits to
competition suggest that resources have to be acquired at a price below their discounted net
present value in order to yield rents. Otherwise future rents will be fully absorbed in the price
for the resource. Ex post limits to competition suggest that it would be difficult or impossible
for competitors to imitate or substitute rent-yielding resources. Imperfect mobility suggests
that the resource should be relatively specific to the firm. Otherwise the superior bargaining
position that is obtained from not being tied to a firm can be utilized by the resource to
appropriate the rent that the resource helps create.
The resource based view theory of the firm predicts that resources at the disposal of the firm
are key determinant of firm performance. According to this view, such resources include the
firm’s core competencies in its marketing strategies, its production strategy, the uniqueness of
its location, distinctive human resource policies and practices, brand name/image, etc. In the
context of the global market or economy, local knowledge of societal norms, consumption
patterns, political culture, etc become resources within the array of resources at the disposal of
the firm. Properly utilized and managed, access to information, “right connections”, as firm’s
distinctive competence can provide the firm the basis upon which to achieve competitive
advantage in its industry.
The resource based view of the firm assumes sustainable competitive advantage as the desired
outcome of management effort (Fahy & Smithee, 1999). The nature of a firm’s sustainable
advantage, according to this theory, is obtained through accumulation and utilization of
valuable resources that are difficult to duplicate by competitors (i.e., imitability). Collis and
Montgomery (1995) suggest that sustainable competitive advantage can be created on
condition that resources have the attributes of inimitability, durability, appropriability,
substitutability, and competitive superiority. In essence, the theory suggests that unique, high
value and rare organizational resources lead to superior performance through enhanced
competitive advantage.
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Ogbor, J. O., Iyamabhor, M., & Awosigho, O. P. (2021). David Versus Goliath: The Competitiveness of Africa’s Local Enterprises in The Global
Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
The Resource-based view of the firm is an appropriate theoretical consideration in terms of its
applicability to competition in the global marketplace. The reason is that in the global
marketplace certain resources may be specific to a particular firm, while others may be generic.
For example, in the context of global competitiveness, a generic resource, e.g., technology or
production process alone may not be able to enhance the competitiveness of a firm over time
because rival firms may be able to easily copy them through a process of reengineering.
However, knowledge of the local business culture (specific resource) in combination of
technological knowhow may provide a valuable resource; hence the normative appeal from
proponents of competitiveness of firms in the global economy to go glocal. By paying attention
to the particular attributes in regions or countries while using global competitive strategies, the
term, “glocal”, was formulated to encompass the global attributes of a firm (such as technology)
and the localized idiosyncrasies in the markets where firms operate (Menon, 2014). The
process by which firms compete with uniform global strategies while paying attention to local
sensibilities is known as “Glocalization” which encourages companies to “think global, act
local”. As pointed out by Tashakova (2015), while glocalization was coined to describe how
multinational corporations can tap into local markets, it can also be used to describe how local
businesses can grab market share in their regional economies, and potentially, end up going
global themselves.
Resource-based view theory suggests that firms possess heterogeneous resources that allow
managers to execute value creating strategies. Even though it provides managers with a
decision making framework, the theory has been criticized for failing to consider the impact of
dynamic business and market environment (Odhiambo, Kibera & Musyoka, 2015) in which
many firms operate. Besides, the theory fails to explain how resources are developed and
deployed to achieve competitive advantage (Priem & Butler, 2001). This criticism emanated
from the dynamic capabilities theory. Teece, Pisano & Shuen (1997, p. 513) define dynamic
capability as “the ability to integrate, build, and reconfigure internal and external competencies
to address rapidly-changing environments”.
In this paper, we use the social networks and interaction theory as a complementary
perspective to the resource based view of the firm to study how firms can gain competitive
advantage in the marketplace, whether global or local. Social network theory is based on the
assumption that social relations are the key to explaining both individual action and collective
outcomes. Networks may be defined as bounded sets of actors, be they organizations,
institutions, or individuals that are connected by specific relationships (Ferreira, Serra &
Santos, 2010).
Over the years, studies have shown that organizational performance can be linked to the nexus
of social networks and interaction that organizations built up with its external stakeholders
(Aldrich, 1999). Organizations make use of their networks of interaction, especially when facing
intense competition (Gulati, 1998). How firms deploy their strategies to react (adjust) or to
undertake a pro-active action is one of the foci of strategic management research. For instance,
firms may acquire other organizations to access knowledge not yet held (Ferreira, 2005), enter
into an alliance to access new markets (Contractor & Lorange, 1988) or generally seek new
opportunities beyond their immediate competitive landscape through network forms of
organization (Gulati, 1995, 1998). All these strategic actions can be facilitated through the
network of relationships organizations have built in their immediate or remote environment.
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The extant literature has examined the importance of social networks for firms’ success (Dyer
& Singh, 1998; Gulati, 1995, 1998; Tenkasi & Chesmore, 2003), and more generally on a variety
of firms’ economic behaviors (Granovetter, 1985). These relationships form structures that are
capable of influencing firms’ strategic behavior, including their competitive strategies, by
promoting or constraining their access to information, physical, financial and social resources,
such as power and legitimacy (Baum, Calabrese, & Silverman, 2000; Gulati, 1998; Mohrman,
Tenkasi & Mohrman, 2003; Rowley, 1997).
From the perspective of this present study, the network/interaction theory views a firm as a
node in an ever-widening pattern of interactions with various stakeholders. The basic
assumption in this approach is to view the firm as a system of resources interacting with the
environment for its own survival. The competitiveness of a firm is determined by its ability to
procure resources from the network and not merely by the resources it owns. In a network,
customers, customer’s customer, suppliers, supplier’s suppliers, distributors, financiers’ etc.
are linked to each other by direct or indirect relationships.
Thus, the social network/interaction theory complements the resource-based view of the firm
by extending the firm’s resource profile to include the established networks and relationships
to various stakeholders. To fit in the RBV, these network relationships that are of significance
to competitive advantage are those that are valuable, rare, and not easy to be built or imitated
by competitors.
STRATEGIC OPTIONS AVAILABLE TO AFRICA’S FIRMS IN GLOBAL COMPPETITION
Having examined the theoretical perspective upon which this study is based, we now turn to a
discussion of the strategic options available to Africa’s firms in the global economy and global
competition. The main argument here is based on the premises that strategic options available
to Africa’s local enterprise in the global market will be based on its firm specific assets, its
prevailing global industry structure, as well as its prevailing home market condition. These
options can be summed up into three main areas:
• To compete directly against global multinational companies (direct competition),
• To compete indirectly by identifying a niche market (indirect competition) and
• To co-operate with global firms by forming strategic alliances (co-operation with global
multinational companies).
Direct Competition: The first strategic option suggests that Africa’s local enterprise (ALEs)
facing global competition can choose to compete face to face with multinational companies
entering their domestic market. Rather than give way to the new foreign entrant, the local
enterprise can choose to stay independent and fortify its existing competitive assets to outplay
the foreign multinational company (Thompson, Strickland and Gamble, 2010). The ability of
African enterprises to compete and win against foreign multinational enterprises will depend
on their capabilities in either producing at prices lower than global competitors (low-cost) or
their capabilities in producing unique quality products (differentiation) that appeal to the taste
of the major market segment.
The option of direct competition is more feasible in global markets where the multinational
enterprises cannot utilize their global advantages or in areas where the local (African)
enterprise has superiority in particular firm specific assets (networks with important local
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Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
distribution firms, institutions and government agencies), which are accompanied with
domestic market conditions.
Indirect Competition: For many local enterprises, competing against global companies may not
be feasible especially when considering the multinational companies’ superiority in technology
and size advantages. An alternative option for many African enterprises, especially the small
and medium ones is to avoid direct competition with global companies. Indirect competition
can take place in several ways (Dawar & Frost, 1999). First, local enterprises can avoid
competing with global companies by concentrating activities in fragmented industries. In
fragmented industries, large global companies cannot utilize their scale advantages and
therefore find it less economical to operate in such markets, thus leaving a gap that local
enterprises can fill. Thus, the success of a local enterprise depends on the chosen niche, its
capabilities and its firm specific assets.
Secondly, local enterprises can avoid direct competition against global multinational
enterprises by concentrating in those niches that are of little or no interest to the multinational
enterprises, such as customizing to individual users who are willing and able to pay a premium
rather than accept the standard version. Most global companies have built their operations
around the demands of affluent customers looking for a wide range of choices. Their expatriate
managers are used to air-conditioned offices and expensive residences that altogether raise the
costs of the multinational company’s operations in an African country and make it not feasible
for them to target the lower end of the market. Since African companies are capable of operating
at relatively low costs they can target this lower-end market which in most cases covers the
majority and avoid direct clash with global companies.
Thirdly, Africa’s local enterprises can take the advantage of having the presence of
multinational enterprises by supplying products that complement the MNCs’ offerings or adapt
them to local tastes. For example, many oil and gas MNCs in Nigeria are able to shorten their
value chain through outsourcing services to domestic oil companies. In the Nigerian oil and gas
industry, domestic companies are taking advantage of assets left behind by foreign operators
and using their experience to grow into local giants.
Fourthly, local enterprises can choose to avoid direct competition with global companies by
exporting to markets not tapped by global players. African enterprises can go beyond their
domestic markets and export to markets where their firm specific assets can reap added
revenue, scale economies and valuable learning experiences. Seeking markets that are similar
to their home base in terms of consumer preference, geographic proximity, distribution
channels, or government regulations can achieve this end. Africa’s small and medium size
enterprises, for example, can export to the US, European and Asian markets by targeting their
products to the African population in the Diaspora.
Cooperative strategies: Rather than compete with the large global companies, local enterprises
can choose to co-operate with global multinational companies. This could be in the form of long- term contracts, joint venture, collaboration agreement and licensing, franchising,
subcontracting, or even management contract or counter trade agreement. The local enterprise
can choose to co-operate with global companies by establishing long-term contracts with them
for the supply of material inputs or components to the global firms. These long-term contracts
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have a number of benefits to the local firm. First, they shelter the firm from risks. Secondly, they
significantly reduce its marketing costs.
Apart from contractual agreements, the local enterprise can merge with a global company to
form a new venture/company that is jointly owned by both parties. In this case the global
company will accept this option only if it finds that there is something to gain from the joint
venture (examples of such joint ventures include, Hilton and Sheraton hotels operating in
Nigeria). It is, therefore, important that the local enterprise first understand the global
company’s motives for accepting to form the joint venture. If the motive of local enterprise is to
acquire knowledge from the global firm, it should prepare a mechanism for acquiring that
knowledge, that is, it should carry out a systematic investigation of inter-partner learning
(Hamel, 1991).
Local African firms can enter into a joint venture with the global company for the purpose of
developing risk-sharing mechanisms on new products and markets. By joining a global
company it can gain access to the global company’s international market network. This will
enable it to gain international experience and greater exposure to foreign markets and other
advantages of large corporation without losing identity and flexibility.
Other forms of co-operation such as licensing and franchising may the fastest ways for African
local enterprises becoming active players in the global economy (Tallman & Yin, 2002). These
arrangements are useful for local enterprises that lack technological know-how as assets.
Franchising on the other hand is a very useful method of gaining knowledge assets especially
in the area of production, management and marketing skills. By becoming a franchisee, the
African firm gets access to the knowledge assets that have taken the franchiser a very long time
to build.
FIRM SPECIFIC ASSETS AND THE COMPETITIVENESS OF AFRICA’S ENTERPRISES
There are several sources of sustainable competitive advantage. Competitive advantages that
are most significant are those that are specific to the enterprise’s unique bundle of tangible and
intangible resources. These resources can be distinguished as market assets, knowledge assets,
social assets and physical assets.
Market assets are mainly based on the enterprise’s established relationships with customers
and distributors through different kinds of interactions. The enterprise’s relationship with
customers and distributors becomes a strategic market asset only when the relationship has a
specific tie to that particular enterprise. These special relationships with different actors in the
market facilitate the enterprise’s product to reach customers in a unique way that adds more
value to the customer. A local enterprise’s long term interaction with local customers, for
example, creates customer loyalty (e.g. Nestlé’s Nescafe, Unilever’s Lipton, Nestlé’s Milo).
Customer loyalty generates resource position barriers against incoming competitors. Foreign
competitors entering the market will therefore have to pay a much higher price to win customer
loyalty. Just by the possession of these market assets the local enterprise therefore gains a
competitive advantage over any new company entering its domestic market.
Access to efficient distribution networks is often critical for any company to succeed in less
developed country markets. Market assets are path dependent, they are not easily achieved but
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Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
when established they are not easy for competitors to break or replicate. Some Nigeria’s local
enterprises such as the Dangote Group, that have developed strong market assets are in a much
better position to compete directly against global competitors. One of the key firm specific
assets that are likely to determine the success of local enterprises competing directly with the
global company is their existing stock of market assets. More importantly, there are the
established networks that a company has with distributors and agents that are crucial for the
product’s success in the domestic market.
African domestic enterprises with well-established network across the nation may be able to
frustrate global multinational companies by making it difficult for them to reach target
customers. This is more valid in African countries where most markets are characterized by
having very few distributors who are capable of handling large stocks in an efficient manner. If
the enterprise has succeeded in tying these distributors in a way that competitors do not have
access to them; new foreign firms entering these markets may not be able to utilize the same
channels and thus prevented from reaching target customers. In Nigeria, for example, Nigerian
Breweries Limited has succeeded in competing directly against foreign firms (e.g., Budweiser)
by building a network of distributors and having exclusive agreements with a wide range of key
retailers across the country. Since there are very few reliable distributors in the market, new
foreign firms entering the market have had difficulty in getting access to consumers.
A strong local brand name (e.g., Glo, Maggi brand and OMO brand in Nigeria) is another market
asset that could enable the local enterprises competes directly against global competitors in the
domestic market, since brand names take time to build and once accepted customers become
loyal to that particular brand. For a foreign firm to overcome this, it may have to incur costs
that may not be sustainable, especially when considering the market size of most African
countries. Most African countries have very low purchasing power suggesting that
multinational companies may not be able to sustain their operations if the cost of building
brand names is too high. African enterprises can also use their market assets and networks of
interrelationships to negotiate strategic alliances with multinational enterprises with the aim
of gaining access to global markets or technological know-how.
Knowledge assets are based on the enterprise’s accumulated information, skills and know-how.
That is, to what extent is the local enterprise informed and knows how to exploit opportunities
and solve problems. Know-how is mainly embedded in individuals working for the enterprise.
Knowledge that is of relevance to strategic advantage is tacit knowledge; it is normally
accumulated after a period of learning. The question of how a company responds to a particular
problem or opportunity largely depends upon its combined competence of the individuals
(personalized knowledge) in the organization and or the knowledge stored (codified
knowledge) in the organization such as working manuals, structures, systems, processes,
drawings, prescriptions, culture, etc. Knowledge assets are the most important assets that are
likely to determine the competitive strength of the local enterprise.
Home country specific knowledge as an asset is one of the competitive advantages that Africa’s
local enterprises may have over incoming foreign competitors. Such edge gives the local
enterprise an advantage over foreign competitors because it cannot be easily acquired by the
foreign company due to compression diseconomies (Dierickx & Cool, 1989).
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Successful local enterprises in Africa (such as Multi Choice of South Africa, Dangote of Nigeria,
Zenith Bank of Nigeria, Standard Chartered Bank of South Africa) that have succeeded in
operating in their home markets may have developed special knowledge assets, which are
specific to that particular home market. Such skills may be in the form of product technologies
or marketing know-how uniquely developed to fit well with specific consumer tastes, customs
and demands of the local consumer. Enterprises with such knowledge assets can use them to
compete directly against global multinational enterprises in those specific products or services.
Familiarity with the local tastes, for example, enabled Nigeria’s oldest brewer, Nigerian
Breweries Ltd., to maintain its presence in the Nigerian market despite the flow of global brands
(Budweiser) in the markets. The company’s specific knowledge of the local beer market,
modern managerial practices accompanied with in-house training of its sales force, enabled it
to develop low-cost, mass-market brands which managed to overcome rising competition from
imported beers.
Social assets of a firm are defined here as direct and indirect relationships that a firm has with
actors located in the non-market environment. This conceptualization of social assets is similar
to that of social capital (Paxton, 1999) and political behavior (Boddewyn & Brewery, 1994).
Social assets are specific ties that an enterprise has with individual members or groups within
the society. These ties may be reciprocal, trusting, and involving positive emotion. The nature
and context of these ties provide a basis upon which the enterprise can achieve strategic
objectives. A company’s special relationships with board members of a tendering company, for
example, are likely to enhance the company’s chance of winning the tender. Through social
interaction between the enterprise’s staff members and the tendering company’s board
member, additional clues and information that may be critical for the bidding enterprise
winning the tender can be revealed.
Social assets become a source of competitive advantage for local enterprises against global
companies in their domestic markets in a number of ways: First, acts of government, such as,
industrial policy can provide a conducive environment to the local enterprise’s competitive
advantage. Government policies may provide certain conditions that favor local companies or
restrict foreign owned companies in carrying out certain operations or access to certain
resources. Examples include ownership structure which is skewed against foreign ownership
and legislations requiring certain amount of local content in an industry’s value chain. Such
protection measures provide a competitive advantage over foreign firms that do not have
access to such resources or may have access to them at a higher cost.
Secondly, social assets do not necessarily require wealth. Protection measures that
discriminate foreign firms give the local firm a competitive advantage over foreign firms
without any cost. The fact that members of a society are ready to support a particular company
just because it is run by or employs members of their own ethnic group requires no prior
financial investment. This is the case of Globacom, a Nigerian-owned telephone service
providers competing against foreign-owned MTN, Airtel and Etisalat/9Mobile in the Nigerian
market. Globacom’s message that “it is owner own” resonates well among Nigerians who
consider themselves patriotic.
Thirdly, social assets are not easily accessible to a new foreign firm. Social assets are a result of
social interaction that takes time to build. The fact that a firm is local can encourage members
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Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
of a community to be more loyal to that company, just because they trust their local company
is more committed than a foreign firm that is likely to leave any time. Local enterprises can
build on their social assets to compete directly with global multinational enterprises. By
establishing relationships with various stakeholders in the country, local firms can have access
to permits and exclusive rights that can be used to pre-empt foreign competitors entering their
domestic market. Multinational enterprises may enter the market but may be required to
operate at a higher cost relative to the local enterprises already established social assets. For
example, the multinational enterprise may have to spend more than average on advertising and
publicity just to match the competing local enterprise’s social assets.
Multinational companies that are willing to succeed in such markets where their domestic rival
has developed social assets may have to enter into collaborative arrangements so as to
guarantee access to the market This therefore puts the domestic enterprise at a competitive
position for bargaining a favorable deal in such collaborative arrangements. The question of
social assets was the main reason that led to the entering into a joint venture between local
African entrepreneurs and many foreign multinational companies. Such partnership
arrangements are mostly found in the oil and gas sector (NNPC and other multinational oil and
gas companies), accounting profession (Delloite & Touche, Accenture, KPMG, PwC), and in the
pharmaceutical industry (May & Baker, GlaxoSmithKline, Procter & Gamble).
Physical assets refer to the tangible resources that a company has and can be used to generate
additional revenue. Such resources may include capital equipment, manufacturing plant,
materials, land, building premises, financial resources etc. A firm’s access to physical resources
such as unique source of raw materials, high capacity plants can enable the firm to earn
economic rents based on those assets provided that they are not easily available to competitors
and they are not easy to substitute.
Local enterprises, especially those that were formerly state owned had exclusive physical
assets and are in a better position to compete directly against foreign competitors entering
their domestic markets. Some of these companies had capacities to produce large quantities
enough to meet the demand of an entire nation. Enterprises with such plants are capable of
creating entry barriers against foreign firms since it would be irrational for foreign firms to
enter a market where excess capacity would lead to intensive competition and low returns.
These local enterprises with such physical resources that require substantial amount of
investments may pre-empt foreign firms from incurring such investments.
HOME MARKET CONDITIONS AND THE COMPETITIVENESS OF LOCAL SMALL AND
MEDIUM SIZE FIRMS
The factor endowment theory of Hecksher (1919)-Ohlin (1933) ascribes differences in the
comparative advantage of countries in international trade to differences in factor endowment.
The fact that different countries have different factor endowments becomes a source of
competitive advantage for firms located in countries having lower cost factors to earn above
average economic rents. Resource rents arise due to differences of the cost of resources in a
particular country relative to other alternative sources. In areas where African countries have
relatively plentiful natural resources or low cost labor they are in a better position to provide
local enterprises with low-cost advantage against foreign companies. By their enterprises
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having access to low cost resources, they will be able to produce at lower cost than the global
industry and sell at international market prices.
In some countries, natural resources may be available at one particular location and therefore
giving a monopoly to the only one sole supplier. This is true in such industries as oil, mining
and power generation where the first mover advantage plays a crucial role. Small and medium
size companies in LDC having access to such resources can maintain their monopoly position
regardless of global competition. Local enterprises having access to such unique resources are
in a much better position to compete directly with global multinational enterprises.
These companies are also in a better bargaining position if they choose to cooperate with global
multinational enterprises as strategic partners. Due to their monopoly position they can choose
to co-operate with any multinational enterprise in exchange of market access or/and unique
technology that the multinational enterprises posses.
Local enterprises having access to low cost input sources are also in a better position in
competing directly with foreign firms entering their markets. They can capitalize on these cost
advantages by offering products at prices lower than the global multinational company. Since
most consumers in most countries in Africa are cost conscious, the African enterprise therefore
has a competitive advantage over the foreign firm that in most cases has additional cost to bear.
Most of the LDC does not have a very well developed infrastructure that allows easy access to
the whole national market. The infrastructure is characterized with inefficient distribution
systems, poor banking facilities, inadequate logistics; poor road networks, inefficient
telecommunication networks, and frequent power failures. This is far different from the
commercial infrastructure as is known in the West where the commercial infrastructure of
mails, dealers, distributors, multiple stores, credit cards, supermarkets and shopping malls is
normally taken for granted. Although the potential market may be large, access may require a
great deal of investment for a foreign firm from developed economies to be able to operate
efficiently in such markets. On the other hand, since the local firm has always been in this
environment it has already learnt to deal with it and is therefore compatible with such
infrastructural problems.
In such conditions local firms are likely to have a better competitive position than foreign
firms entering such markets. In several developing countries (e.g., Nigeria), producers and
distributors have worked for a substantial time, they develop trust to an extent that the
manufacturing enterprise keeps a supply of open cheques from their distributors. When the
manufacturing enterprise sends the order it simply fills in the respective amount based on the
shipment in the blank signed cheque. Thus, the absence of a viable financial infrastructure and
the lack of working capital have been overcome by trust built by the different actors in the
market after a long time of business interaction. Local firms that have learnt to overcome such
infrastructural impediments can therefore use this experience to compete directly with global
multinational enterprises entering their domestic markets with no prior experience in
operating in such environments.
African enterprises with such experiences can also use these experiences to enter other
developing countries with similar infrastructures, especially those markets where cultures are
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Economy. Archives of Business Research, 9(4). 160-179.
URL: http://dx.doi.org/10.14738/abr.94.9521
similar to those of the home market. Due to the fact that the majority of the population in Africa
has very low income, domestic demand is constrained by very low purchasing power. The
middle class that can afford higher prices is very small. The majority of the population is
concerned with meeting the basic necessities. Most African consumers look for products that
are durable, have lower prices and lower maintenance costs. As a result of this, consumers in
African countries are far more focused on the price-performance equation than their
counterparts in developed economies.
These demand conditions tend to give local low-cost African enterprises a much better
competitive position in hotly contested markets. Foreign firms will either have to target the
very small middle class or sell at the lower prices on a cash basis, an option that may not be
feasible to foreign firms. Many foreign firms have rushed into developing countries being
attracted by the market size, only to realize that the costs are much higher than the profits that
they are likely to get from operations in such markets. Africa’s small and medium size
enterprises can capitalize on local demand conditions and compete directly with global multi- national enterprises by targeting the lower end of the market where the majority of consumers
are located. Nigerian Breweries Limited, for example, has managed to capitalize on domestic
demand conditions in Nigeria by pursuing aggressive marketing strategies by offering products
to all market segments thus leaving very little room for any foreign company to dominate the
market. Nigerian Breweries Limited offers low priced quality beer to the mass- market segment
of low-income earners. At the same time, it offers other brands at premium prices targeting the
small upper niche where it competes with other global brands such as Heineken and Guinness.
CONCLUSION AND RECOMMENDATIONS
As a result of globalization, the world market has become more and more integrated and African
enterprises are increasingly being exposed to vagaries of global competition. The growing
literature in international business has assumed that globalization has put African enterprises
at a disadvantage vis-a-vis the large global companies. Based on the resource-based view of the
firm, this paper has provided an alternative framework for analyzing the competitive options
available to African local enterprises in a global market. The framework suggests that firm
specific assets, global industry conditions and the local enterprise’s home market will influence
competitive options for African enterprises.
Through a meta-synthesis of the available discourse and counter discourse of Africa’s
competitiveness in the context of the global economy, this paper has argued that by drawing
strength from their firm specific assets, Africa’s local enterprises, as our biblical “David”, can
stand up and compete against global companies (the Goliaths) entering their domestic markets,
particularly in multi-domestic industry structures where pressures for globalization are low.
African local enterprises can also avoid direct confrontation with large global companies by
choosing to serve niche markets that require firm specific assets or in fragmented markets that
are not attractive to global companies. The option of collaborative arrangements with global
companies will enable them to gain market access and learn from global companies.
To the field of international business management this study has started the shift of focus from
the multinational enterprise to the analysis of global competition from the perspective of the
competitiveness of enterprises in less developed countries such as African countries. The
suggested framework can also be used by scholars to map strategic options for local enterprises
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in selected markets. Future research can empirically test the framework to see how well the
arguments hold.
To policy makers, the discussion provided in this paper goes beyond protectionism and opens
up alternative views of the role that local companies can play in the global market. It encourages
policy makers to provide incentives for the empowerment of their national enterprises without
necessary going against the World Trade Organization (WTO) rules. Both foreign as well as local
enterprises can grow for mutual benefit of all parties.
For managers of local enterprises, this work provides a useful contribution to changing their
mindset from that of weak players to that of veritable competitive players in the global markets.
This study has highlighted areas of strength which local firms can capitalize on to build their
competitive advantages in global markets.
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