The prospect of Direct Investment in South Africa and Japan

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With the rapid development of Australian tourism industry, as Australia¡¯s only remaining grand hotel with 140 years history, our business increased 0 percent over the last 5 years and has been a leading hotel for decades. At the same time, Australian local market has trended to be saturation. If we want to keep and surmount this growing tendency, expanding overseas markets is the best choice for the company. South Africa and Japan were selected as the destinations for our future investment and setting up our branches. The purpose of this study is to prospect the direct investment conditions and weigh the advantages and disadvantages of these two destinations.

Some business essentials will be used for evaluation. According to Porter¡¯s theory of competitive advantage, a success in international business depends on four basic elements and two additional variables. This essay will analyze the FDI environment in South Africa and Japan from these basic aspects.

The related information and data were obtained from the two governments¡¯ official websites and documents, from some professional journals and periodicals.

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This study is based on Porter¡¯s competitive advantage theory and just focuses on the basic elements of FDI. It could not contain all aspects of running subsidiaries. It could not predict the occurring of unexpected changes in policies or other aspects too. And our study field just focuses on the same grade as ours (the world best hotel five-star hotel). While they are limiting factors, this study is just used for making primary investment decision.


South Africa


As a large emerging and opened market, South Africa supplied many outstanding reservations. The following factors will be discussed (1) ideal demand conditions () less-rivals market () the government¡¯s privilege policies (4) similar cultural background in management and language. The third one can bring more benefits to us.

South Africa is one of the strangest and most dramatic landscapes in the world. Depending on the kaleidoscope fascinating cultures and the unique wealth of natural resources, South Africa attracts millions of tourists from all over the world. According to South Africa Department of Environmental Affairs and Tourism¡¯s statistics, from Jan to Mar 00, overseas tourists was 461,17. Although we have not got the latest statistic figure, it is reasonable to believe that this figure should keep increasing because of the booming of worldwide tourism. Of course, South Africa¡¯s tourism industry can not compare with Australia¡¯s (In Jan 00, 416,700 visitors arrived Australia.). But the market of supplying accommodation and related services to the tourists is large enough and could not be ignored.

At the same time, the competition in South Africa is not as serious as that in Australia. In South Africa, there are 17 five-star hotels totally, respectively, 8 in western cape, 4 in Garden Route, in Gauteng, in Mpumalanga, 1 in Sancity (South African Golfing & Safari Tours, 00). Correspondingly, we have 55 adversaries in Melbourne, 15 of them are the same as us, five-star hotel. So, if we set up branch in South Africa, we have a large space in high-grade accommodation service to develop and need not face a severity rigorous competitive situation.

As for government activity, in order to own a competitive fast-growing economy and society, South Africa government worked out a serious of policies to encourage FDI. As a principal industry, tourism has been paid more attention to.

In May 16, Government of South Africa & Department of Environment Affairs and Tourism made an official document, ¡°The Development and Promotion of Tourism in South Africa¡±. In that document, the government of South Africa emphasized the importance of attracting foreign investment in tourism industry, consented to go on practice the previous preferential policies and constitute new ones in a higher height in order to ¡°achieve growth and development objectives of the tourism growth¡±.

The document pointed out that ¡°the hotel sector has been the main target of incentives. Tax concessions were made available to hotels which included the write-off building cost over 0 years.¡± And the government planned to make a movement away from tax related incentive schemes, towards ¡°on budget¡± subsidies and grants.

In addition, South Africa government has begun to operate tourism financing schemes since 1, namely, the Ecotourism Scheme and the General Tourism Scheme. They approve loans, which can help us to deal with the problems in fund.

Furthermore, because of western long-term colonial rein in South Africa¡¯s history, the mainstream culture of South Africa¡¯s society is inclined to western. We have the similar management principles, have the similar frames of reference and use the same official language-English. All of these will bring a lot of conveniences to our business.

Last but not least, investment in South Africa can bring more opportunities to us for our business¡¯s future development in other African countries. Because of well-known historical and cultural reasons, western culture plays the same important part in South Africa society as traditional African culture. South Africa is the gateway of other African countries and African culture. If we can be successful and gain useful experience in South Africa, it will become easier to enter other African countries¡¯ markets.


There are some obstacles for our investment too, which display in labour, management, government officers¡¯ corruption and underdeveloped infrastructures.

It is necessary to get qualified local middle managers and skilled workers for our future hotel. Unfortunately, it is difficult in South Africa. There are two main reasons for this problem.

Firstly, the average education level is very low in South Africa. Armestrony (15, p) stated that there are only 1.1 million people have university or college training in total 41 million population and believed that this situation should contribute to apartheid education system. Black children hardly have opportunity to study 0 years ago. Now they grow up without education. It is difficult to select trained employees for our middle manager positions from them.

Secondly, AIDS grabs labors with us. South Africa now has the world¡¯s highest infection rate of AIDS that could climb to 5 percent by 010. The impact on business is becoming increasing apparent. Simon Bernard (1, p05) pointed out that ¡°the spread of disease is taking its toll in falling productivity, rising rate of absenteeism, and loss of skilled workers.¡±

There are still troubles in management. According to Ahmed, Heller & Hughes¡¯s survey (1, p74 (1)), the hospitality industry in South Africa is highly disordered. And as another legacy of apartheid, ¡°large segments of the population do not have a clear notion of what tourism entails or what customer service is all about.¡± Of course, everything of our branch in South Africa must cater for international standards, so we have to spend more time on management and training employees.

Government officers also could bring problems to us. As a common social problem, corruption maybe is more serious in South Africa than that in Australia. In South Africa, corruption occurred in ¡°courts, customs, business licensing and so on¡±. (No obvious author, 00), ¡°Just how bad is it, really? Corruption in South Africa¡±, (The Economist US, August , Vol. 68, No. 85, p45.) In the whole process of investment, from building our hotel, applying for licensing and loans to solving taxation problems, running, we need South Africa government offers¡¯ help in every step. So corruption problems can not be avoided and should be dealt with carefully in specific work.

The infrastructures in South Africa are underdeveloped and can not compare with that in Japan and Australia. The transportation system and water, electricity and gas supply system should be developed as soon as possible in order to avoid baffling the evolution of South Africa¡¯s economy. South Africa¡¯s area is about four times as large as Japan¡¯s, but it¡¯s railroads length is less than Japan¡¯s and its highways length is less than Japan¡¯s one-fifth. Although its airport number is the largest but the quality is not satisfied. Its water, electricity and gas supply system have not built up a sound network. If the location of our hotel is near city center, the negative terrible effect of infrastructures can be avoided partly. On contrary, maybe we need to build special pipelines for ourselves. (Please see Appendix Table for the details.)



Japanese investment environment and hotel industry are total different from South Africa and Australia. As one of the most developed countries, Japan has many obvious strong points. Such as the amount of demand is larger than South Africa and astonished; related supporting industries are consummate; labour quality is better than South Africa.

The demand for hotel industry in Japan comes from two main recourses. One is tourism. Another is business travel.

For most people, Japan is a mysterious country because of its flexuose history, supernatural sagas. Japan offers a very wide range of attractions, from historical and cultural treasures to modern and futuristic sights and beautiful forests, mountains and seacoasts. Except these, Japanese cuisine is one of another Japans greatest attractions. A great variety of Japanese cuisine and food from around the world can be enjoyed in Japan. This year, Prime Minister Junichiro Koizumi set a goal of doubling the number of foreign travelers to 10 million by 010. And a campaign named ¡°Visit Japan¡± will be promotion abroad by Japanese government in order to attract more foreign tourists.

Japan¡¯s Tourism has become the superpower of the Pacific area. According to Japan Tourism Advisory Council¡¯s statistics (Prime Minister of Japan, 00), the number of foreign tourists who visit Japan remained at around 5 million people per year in recent years. Compared with the number we discussed above, it is about the same as Australia and three times that of South Africa. Adding the number of Japanese tourists who travel in Japan, it is a stupendous resource of guests for accommodation industry.

In addition, it could not be denied that Japan is one of the strongest countries in economy in the world. Although there is a continuous decline in Japanese economy, Japanese GDP reached around Y50 trillion ($4. trillion) in 00 and looks like producing the same kind of performance in 00 (Moffett, 00, Pp4) (Australia is $48.5 billion in 001). With that, Japan has a busy business system. Millions of people travel for business every year. Some of them are senior managers and are our potential guests.

Japan owns perfect related supporting industries. Its tourism is booming as we discussed above. Its transportation system has built up an ideal network that extends in all directions and works very efficiently. Most of Japans major cities offer impactful public transportation networks, and are connected with each other by the shinkansen, the Japanese bullet train. Developed airport and airlines, railway, subway and highway can ensure that tourists and business travelers could reach their destinations rapidly. Japan¡¯s water, electricity and gas supply system is even better than Australia. (Please see Appendix Table for the details.)

As for work force resource, Japan owns the highest level of high school graduates and average education level in the world that even are better than the United States (Wilqoren, 001, pA6). And Japanese religious work attitude is well known by the world. So we need not worry about common employee¡¯s qualification.

In addition, more and more Japanese universities began to offer hospitality management programs from 188 And JAM (Japan Management Association), a specialist organization for management education, offers courses throughout Japan. Besides those, there are many corporate educational organizations that are human resources development subsidiaries created by large corporations (Taylor & Berger, 000, Pp84-4). These resources will supply plenteous middle managers.


Of course, there are also many difficulties, which must be considered carefully before we invest in Japan. We have to face adverse government policies, different types of antagonists, inclement competition, expensive cost and cultural differences.

The largest obstacle comes from Japanese government. In order to protect domestic hotel industry, Japanese industrial policy does not encourage foreign investment in its hotel industry (William, 1, Pp6-). In other words, it is more difficult to get loans, government franchise, contracts, licensing and some thing else in Japan than that in South Africa.

Furthermore, William¡¯s study (1, Pp6-) displays that the Japanese government does not ban individual Japanese hotel firms to develop a very close interrelationship, which might be viewed as an unfair business practice in USA. She explained that,

¡°In Japan, there is considerable intertwining of stockholding among various hotel firms. There is also a broad exchange of operating data among them, and such information is shared all the way down to the operating levels. This practice of information exchange at many levels of the business is not seen as anti-competitive in Japan.¡±

If some Japanese make up a large beneficial organization, we have no chance to compete with them.

In Japan, there are two total different rivals. One is western-style hotel; another is ryokan (Japanese inn-style accommodation).

According to William¡¯s survey (1, Pp6-), in the last 40 years, western-style hotels have grown dramatically. ¡°And the recent major growth appear to be from development by a variety of large and well-financed firms.¡±

Based on the list in Asia-hotel net site (Paragon Travel Ltd, 00), there are at least 6 five star hotels in Japan. Considered Japan¡¯s scanty area (Japan 77,87 sq km; South Africa 1,1,1 sq km; Australia 7,617,0 sq km), it is a high density and implies an inclement competition. And most of these hotels belong to large MNCs, such as Park Hyatt, Le Meridien, Holiday Inn etc. The stable customers resource and abundant financial power are their obvious competitive advantages.

Another formidable rival is ryokan. Most of them are small and family-operated. There are filled with tatami, futons and other types of sleeping pads. Although their service quality and grade can not compare with ours, but their feature of Japanese culture and personal hospitality attract many foreign and Japanese customers. In fact, ¡°Japanese inns far outnumber Western-style hotels and serve far more customers each night than do modern hotels¡±(William, 1, Pp6-).

Some of our local Japanese rivals have another predominance that we could not own. It is that they belong to Japan¡¯s private railway and subway firms. These firms own the area around rail and subway stations, ¡°which provide a ready ¨Cmade situation for a successful hotel.¡± And ¡°some firms have built successful chains through station locations, especially in Tokyo.¡± (William 1, Pp6-)

Owning (buy or rent) a land is the beginning of setting up our branch. Unfortunately, Japan¡¯s land price is astonished because of Japanese shortage of land. It will cost the majority of our investment. The result of William¡¯s survey shows that Japanese land price increases to the point ¡°where 70 percent of the cost of a hotel- building project.¡± On the one hand, golden area is too expensive to afford for us. On the other hand, cheaper area will lead to a decrease in customer resource. We are in a dilemma. But may be the situation is not as terrible as what William described or is becoming better. Ibison (00, Pp10) recorded that ¡°Japanese land prices dropped 5. percent in 001, compared with 4. percent in 000, 6 percent lower than levels seen in the late 180s.¡± If this tendency could be kept, it is good news for us.

If we give up the idea of running a new business from zero, the transaction of hotel is a crosscut. Because with the recent prolonged economic downturn, some Japanese companies are forced to give up their hotel assets in order to avoid bankruptcy. But there are still two main barriers. ¡°First, proper value analysis of hotel business is often difficult due to the lack of transparency and information provided by the owners. Second, there is still a huge gap between the prices at which the sellers and the buyers want to trade.¡± (Emiko, 000, Pp18)

In the end, it is well know that there is not any non-Western design in Japanese culture. Naturally, the generation of a different managerial world view is not astonished. For example, ¡°Japanese managers were more concerned with team effort, respect for authority, self-development, group appraisal, nepotism and long-term employment than were western managers.¡± (Alarid & Wang 17, Pp600) We should set up our Japanese managers group in Japanese way and our senior managers should work in Japanese way too. It will be a difficult process.

Japanese is a very difficult language for most of our senior managers. They will have to rely on an interpreter to translate the message, which can affect the quality and effectiveness of communication. Therefore, the language barrier is the first and most difficult problem for our managers to communicate with local staff and guests.


The main advantages and disadvantages of South Africa and Japan¡¯s investment environment can be concluded as the following table simply.

South Africa Japan

Demand Conditions Large market Larger market

Rival & Competition Less rivals Limited competition More rivalsSerious competition

Government¡¯s Privilege Policies Hortative, loose, favorable Repellent, strict, unfair

Related Industries Developing tourismUndeveloped infrastructures Thriftily tourismConsummate infrastructures

Labour & Manager Shortage of skilled workersAbsent middle managers High quality laboursAbundant middle managers

Culture & Language Similar cultureSame official language Absolute different culture and language

Others CorruptionBehindhand hospitality management Expensive land price

The government policies should be the first essential when we decide the destination of our international investment, because they are the key of the opportunity of our investment. It is clear that South Africa FDI policies could bring more benefits to us. And considered that we are in short of the experience of running overseas branches and abundant fund. South Africa is the more advisable choice for our company too.

Although we have to spent more time and fund on training projects and management, we still could save more money compared with the expensive cost in Japan. And the venture of our investment in South Africa is less than that in Japan, because the rivals in South Africa are not too strong and too much. With South Africa¡¯s political situation is becoming more stable, the country will spent more on infrastructure, therefore, the tourism and accommodation industry will develop more rapidly.

Of course as a mature market, Japan has more capacious customer resource, perfect infrastructure and more satisfied labour qualification. It is a pity for us to give up it. If we could find out a local cooperation partner and use the ways of portfolio investment and management contracts in Japan, the risk and fund requirement will be decreased to the lowest level. After we are familiar with Japanese market, accumulate enough experience and fund, set up our local management groups, we can expand and build up our hotels chain in Japan. For Japan, we need wariness and patience.


Ahmed, Z. U., Heller, V. & Hughes, K. A. (1), ¡°South Africa¡¯s Hotel Industry

Opportunities and Challenges for International Companies¡±, Cornell Hotel & Restaurant Administration Quarterly, Feb, Vol. 40, No. 1, p. 74(1).

Alarid, L. F. & Wang H. M., (17), ¡°Japanese Management and Policing in the

Context of Japanese Culture¡±, Policing, Vol. 0, No. 4, p. 600.

Armstrony, S. (15), ¡°Skilled Shortage Blights South Africa¡¯s Future¡±, New Scientist, Jul 8, Vol. 147, p. .

Bernard, S. (1), ¡°Employers Slow to Grasp the Reality¡±, Financial Times, Sep 0,

p. 05

Government of South Africa & Department of Environmental Affairs and Tourism,

The Development and Promotion of Tourism in South Africa,

(http//www.gov.za/whitepaper/17/tourism.htm#5.4) 05/16

[Accessed 0/08/0]

Ibison, D. (00), ¡°Japanese Land Prices Fall Again NEWS DIGEST¡±, Financial Times, Mar 6, p. 10.

Emiko, T. (000), ¡°When Its Hard to Find Accommodation Japanese Hotels Are

Extremely Difficult to Buy¡±, Financial Times, Jul 1, p. 18.

Moffett, S. (00), ¡°Japan Steady Decline¡±, Far Eastern Economic Review, Feb

1, Vol. 166, No. 6, p. 4.

No obvious author, (00), ¡°Just How Bad Is It, Really? Corruption in South Africa¡±,

The Economist (US), August , Vol. 68, No. 85, p45.

Paragon Travel Ltd, Hotels in Japan,

(http//www.asia-hotels.com/hl/Japan.asp) 6/08/0

[Accessed 0/08/0]

Prime Minister of Japan, Japan Tourism Advisory Council,

(http//www.kantei.go.jp/foreign/policy/kankou/konkyo_e.html) 14/01/0

[Accessed 0/08/0]

South African Golfing & Safari Tours, 5 Star Hotels & Resorts,

(http//www.golfing-safaris.com/overnight/5star.htm) 00,

[Accessed 0/08/0]

Taylor, M. S. & Berger, F. (000), ¡°Hotel Manager¡¯s Executive Education in Japan

Challenges and Opportunities¡±, Cornell Hotel and Restaurant Administration Quarterly, Aug, Vol. 41, No. 4, pp. 84-4.

The USA CIA, 14 Years of World Facts, 00,

(http//www.theodora.com/wfb/index.html) (0/01/0)

[Accessed 0/08/0]

William, H. K. (1), ¡°Japan¡¯s Hotel Industry An Overview¡±, Cornell Hotel and

Restaurant Administration Quarterly, Apr, Vol. , No. , pp. 6-.

Wilqoren, J. (001), ¡°Education Study Finds U.S. Falling Short¡±, New York Times, Jan

1, p. A6

Appendix Table

South Africa Japan Australia

Area (sq km) 1,1,1 77,85 7,617,0

Railroads (km) 0,68 ,654 40,478

Highways (km) 188,0 1,15,07 87,87

Main Ports 7 1 1

Airports 85 17 480

Inland waterways (km) NA 1,770 8,68

Natural Gas Pipelines (km) 1,800 5,600

Crude Oil Pipelines (km) 1 84 ,500

70 of them are with unpaved runways or paved runways under 14m.

(The USA CIA, 00)

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