An international study of business executive mindsets appears to debunk the notion that number-crunching and empirical data drive business decision making. The latest Grant Thornton International Business Report (IBR) shows that half of African senior executives say their decision to expand into a foreign market was based on an instinct that it ‘felt’ like the right choice.
Far from dismissing the value of business insights, however, Grant Thornton South Africa’s National Chairman Deepak Nagar says this instinct for markets and opportunities is based on business experience.
“In speaking to many clients, they have a gut feel that they need to be in Africa because they can see economies growing, there is greater stability and a growing middle class,” he says. “You have to be careful though about what you regard as instinct rather than a blatant guessing game.”
He suggests that the latter approach is found among young entrepreneurs who lack the experience to make sound judgement calls based on what they may consider to be positive signals.
The question of signals and psychological drivers in the decision-making process featured prominently in the Grant Thornton IBR ‘Beyond Borders’ 2015 study.
For example, executives in the United States and Western Europe are five times more likely to enter foreign markets, despite a potential downside, due to FOMO – the fear of missing out – than their counterparts in India, Brazil and China. It is surmised that this is less a psychological hitch in these executives than it is an awareness of ‘first mover’ advantage.
By contrast, African executives appeared more hesitant, with many remaining cautious in the face of a threat, preferring instead a ‘wait and see’ approach. Despite this, 36% of African businesses cite a desire to keep up with competition as a factor behind their international expansion decisions.
Nagar says that fear is justified in many African markets that do not yet have financial markets or regulation that offer a degree of protection. For this reason, South Africa is still seen as a gateway into the rest of the continent although the economy is missing out on greater direct investment because it is mainly a springboard rather than a preferred market for Africa-focused operations.
He adds that the recently signed Tripartite Free Trade Area (TFTA) is an opportunity for South African businesses to expand into Africa, although it should not remain merely an agreement signed on paper.
“What is needed now is the launch of a business initiative to ensure that it can be used to reduce red tape, an easy flow of goods and money to ensure that we continue to grow trade and skills between our nations. We also need government to motivate business to use the policy framework and also to be more open to talking to business about what else could be done to improve this,” Nagar suggests.
He believes the TFTA will undoubtedly open the doors for trade for businesses that are in a position to take advantage of the opportunity, and could well spur on more of the ‘gut feel’ expansion revealed in the study.
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies. This unique survey draws upon 22 years of trend data for most European participants and 11 years for many non-European economies. In Africa, the IBR covers 200 business leaders from Nigeria, South Africa and Botswana. The data for this Beyond Borders report are drawn from interviews with more than 2,500 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in February 2015.