The diversification strategies of large South African contractors into southern Africa

Abstract

ABSTRACT This article presents the results of a study into the current diversification strategies of large South African contractors and the reasons for choosing southern Africa as a diversification strategy. It investigated the major risks involved in doing business in southern Africa, which of the southern African countries are more favourable to diversify into and the impact of diversification on performance. It also attempted to identify the major competitors in southern Africa and the source of their competitive advantage. The study consists of a literature review and utilised the data from the annual reports for the period 2007 to 2011 of nine selected large South African contractors, as well as relevant publicised news articles. All the data used in this study is already in the public domain. The research found that the countries of southern Africa present significant opportunities for South African construction companies. Southern Africa forms a definite part of the diversification strategies of large South African contractors; they are, however, mostly moderately diversified, and the 'big' players are highly diversified both operationally and geographically. The extent of diversification has an impact on performance, as undiversified is clearly associated with underperformance, and moderately diversified within a specialised field with outperformance. The research was inconclusive on the identities of the major competitors in southern Africa and the source of their competitive advantage. It was, however, found through the literature study that Chinese contractors are the major competitive force in southern Africa and in the rest of Africa, and their governmental support systems on policy and financial backing are the source of their competitive advantage.