GM Returns to South Africa

Why did GM leave South Africa ten years ago? What was the dilemma facing foreign firms at that time?
GM pulled out of South Africa because of the country’s policies of racial segregation and pressure from

shareholders. “The industry was too small, too fragmented and overtraded to provide a viable future for the 7 major vehicle manufacturers at the time,” says Nico Vermeulen, executive director of NAAMSA. Mlota elaborates: “The key original objectives were to improve international competitiveness and domestic vehicle affordability, encourage domestic growth, reduce complexity in supply through rationalization, convince manufacturers to focus on longer production runs and modernization, create sustainable employment, create a better balance in foreign exchange, and particularly to achieve growth in exports.” In tackling such a multifaceted agenda, the MIDP has continued the methodical process of bringing down custom barriers which began in the late 1980s with the reduction of import tariffs as high as 115%, and created for the first time, based on the previous Australian model, powerful new measures such as Import-Export Complementation and Productive Asset Allowances to spur a renaissance in the local industry.

Why did some firms decide to continue operating in South Africa at the time of racial segregation? Do you think they were being more or less socially responsible to the people of South Africa? Research some MNCs that did not leave during the period of apartheid. Do you think they are better off now than those which left?

How can foreign firms balance their strategic interests and their social responsibility when faced with similar situations?

Is GM in a better position in South Africa now? Is the South African economy in a better position now that GM has returned?
Yes, South Africa’s automobile exports are booming, making cars one of the country’s fastest growing industries, largely because of new trade agreements and domestic regulations that give companies credit for cars and parts they export. The country also can tout cheap industrial land, even cheaper electricity, stable macroeconomic policies, proactive management, immense natural resources, expertise in process engineering and niche innovation, unparalleled production flexibility, and ISO certifications. These positive factors outweigh the current challenges of a strong commodity-fueled Rand, poor local infrastructure characterized by a lack of coordination between national, provincial and local governments and little input from the automotive industry. In addition, they are also employing the South African’s which also helps the economy. On the back of all-time record production of 530,000 vehicles and sales of 617,000 vehicles, increases of 16.5% and 25.7% respectively, South Africa was the world’s fastest growing domestic vehicle market in 2005. Clearly, this status has been the driving force behind new players like India’s Tata and the Koreans taking on the South African incumbents head on with their value-proposition imports. It is abundantly clear that even though South Africa is a Top 10 global market for both Daimler Chrysler and BMW, the country is quickly growing beyond its traditional prestige market and brands. Today, the South African marketplace is already home to over 1,100 models and variants, an amazing ratio of offerings per capita, and economic forecasts of 6% real growth going forward should ensure a fantastic cascading effect as the industry counts down to the One Million Vehicle Sales mark.

What other similar situations prevail in the world now, and how do you think MNCs should respond?
A similar situation that comes to mind is the war in Iraq. The United States is a huge country with their set of values and so is Iraq. That doesn’t make either country right or wrong. In fact, since we believe that majority of the world should adopt our way or no way, makes us a bully. Just as we have long standing traditions on how we do business, so do other countries. The United States presence in Iraq is making the people of the country angry because we do not share their beliefs. Although we are there to assist in rebuilding the countries infrastructure, we should also adjust our beliefs and customs to theirs. “When in Rome, do as the Romans do.” I think we should respect their beliefs like the women should be covered with only their eyes being exposed. We should stop to pray at particular times of the day. We should respect their customs about keeping the cow sacred and not eat beef, well especially in their presence.

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