Foreign direct investment of Chinese SMEs in the Free State

[摘要] According to the Global Entrepreneurship Monitor survey, South Africa has a low early stageentrepreneurial activity rate of 7.8%, which is significantly lower than the average for allefficiency-driven economies (11.4%) as well as the average for all middle to low incomecountries (13.2%).Also, high levels of poverty, income inequality and unemployment are majorissues that impact the economic growth of South Africa. Pahad (2008) acknowledged that SouthAfrica's social-economic goals are to reduce inequalities, reduce wealth and asset gaps betweenrich and poor, halve unemployment by 2014 and meet the Millennium Development Goals.However, one way of solving these issues is to encourage more foreign SMEs as they arecapable of providing investment injections in various sectors of South Africa's economy, such asagriculture, industry, education, and health. Likewise, these foreign SMEs can help eradicatepoverty, improve employment and reduce income inequality and wealth disparity between therich and poor.The main objective of this study was to investigate the motives of Chinese SMEs foreign directinvestment in the Free State Province (FSP) and their perception about the external businessenvironment in South Africa. The study examine empirically the motives of Chinese SMEsoperating in the Free State province and determined if they were driven by the supply/resourcebasedor the market driven factors. The study also identified the external environmental factorswhich can hinder foreign SMEs from investment in South Africa.Across-sectional study using the survey method was used to collect the data. Simple randomsampling method and a non-probability snowball sampling method were used to determine thesample size of Chinese SMEs in the Free State province. A standard questionnaire was designedafter a detailed literature review of the business environment and foreign SMEs investments.Data was gathered through self-administered questionnaires. The specific methods of dataanalyses used include descriptive statistics, cross-tabulations, frequency tables and T-tests.Reliability was tested using the Cronbach's Alpha. Pre-testing the research instrument in a pilotstudy was used to determine the validity of the research. iiThe research findings showed that the motives of the Chinese SMEs foreign direct investment inthe Free State was predominantly market-seeking FDI. The findings also showed that the manyexternal factors were impacting the operation of the foreign businesses negatively with crime,corruption, labour regulations and xenophobia being reckoned as the main external factorsseverely impacting the businesses. In addition, the Chinese SMEs had a negative perceptionabout the external business environment of South Africa with 86% of them indicating that theyhad suffered from crime. Furthermore, the empirical findings revealed that SMEs in themanufacturing sector employed the highest number of employees and have stayed in SA for alonger period. Similarly, most of the exporters were in the manufacturing sector. However, themajority of those who were unsatisfied about their investment decisions and were willing toleave South Africa were in the manufacturing sector.The study provided some recommendations to improve the external business environment of SAso that more effective and efficient FDI is attracted. The recommendations include the need toimprove the fight against crime as it is seen as the number one factor impacting and deterringaway FDIs from SA. To attract sufficient supply/resource-based FDI, the government also needsto improve its labour regulations, thus easing the hiring process. To add, South Africa has tomake its legal system more efficient by shortening the long procedures and duration of courtjudgments as well as making it more affordable. A better legal system can reduce crime,corruption and unethical behaviour.

[发布机构] University of the Free State