Wednesday, September 23, 2020

BIDPA calls for Botswana firms to expand beyond borders

BY PORTIA NKANI

The Botswana Institute for Development Policy Analysis (BIDPA) has called on for more effort to be made to assist more local firms to expand their business across Botswana borders.

This move, according to the BIDPA research paper titled,”Impact of Internationalization on Firm Performance in Botswana” will result in better financial performance by local firms.

Goitseone Khanie ÔÇô the research paper author said that internationalisation positively affects firm performance.

“Regardless of the several constraints they face, firms in Botswana should be encouraged to expand internationally. For example, the shortage of raw materials locally should provide incentives for firms to penetrate foreign markets. Likewise, the limited size of the domestic market should motivate firms to engage in export-led expansion so as to enhance their performance.”

By using an index, the paper suggests that firms should employ different internationalization strategies to penetrate foreign markets so as to ensure increased growth. As a result, public policy must emphasize business diversification among firms in order to augment their operations.

There is also need to further investigate other aspects of foreign expansion by the firm. Studies in future might explore effects of international marketing strategies, international technology as well as international certification on firm performance. Moreover, it may be important to consider the reverse causality between internationalization and firm performance since different firms may pursue different levels of internationalization given their performance levels.

Globally, international trade has grown at an unprecedented rate over the years. There have been numerous international trade reforms, including the elimination of trade barriers, tariffs, and quotas, which have encouraged the free movement of goods and services between countries. Moreover, technological advancement has contributed to the development of a global market where communication is faster and easier. These developments have opened domestic markets for international competition and owing to this, domestic firms have to increasingly seek means to strengthen their capacities as well as maintain competitive advantage. Similarly, due to the limited capacity of domestic markets, enterprises are forced to search for opportunities for growth and wealth creation by entering foreign markets.

In Botswana, the government has been progressively promoting trade and investment as well as encouraging export development with an endeavor to encourage firms to enter foreign markets. Some of the institutions governing these endeavors include the Botswana Investment and Trade Centre (BITC), Business Botswana (BB) and the Private Sector Development Programme (PSDP). Furthermore, the government of Botswana promotes export-led growth through National Development Plans. The need for active participation in economic activities through the route of private foreign investment is highly emphasized among firms in Botswana.

In making efforts and creating opportunities to make Botswana better, President Mokgweetsi Masisi has recently also challenged Batswana to take advantage of trade agreements that the country has signed with other states. This he says, they should “work hard to penetrate not only the African continent through the African Continental Free Trade Area Agreement (AfCFTA) but also the Chinese market as well.”

The AfCFTA Agreement he said will give Batswana the opportunity to benefit from inter-regional trade within the African continent, and greatly contribute to the growth and diversification of the country’s economy.

AfCFTA covers a market of 1.2billion people and a gross domestic product of US$2.5trillion, across all 55 member states of the African Union.

Analyzing the impact of internationalization on firm performance, the study found a positive and significant influence of DOI on ROS. Our results indicate that a 1 percentage increase in degree of internationalization index (DOI) will increase return on sales (ROS) by 0.33 percentage points. Khalie noted, “It is for this reason that we conclude that engaging in international business practices is positively related to firm performance. Hence among other growth strategies, internationalization can be considered as an important aspect of maximizing a firm’s performance in Botswana.”

On the other hand, firm-size which is measured by the number of employees does not have an influence on the performance of the firm. Firms which operate in the retail industry attained 47.22 percent higher return on sales than those which operate in the manufacturing industry. Similarly, firms which operate in other-services attained 48.16 percent higher return on sales than those in the manufacturing industry. The results imply that operating in any industry other than manufacturing leads to a significant increase in a firm’s return on sales. This could be explained by the small size of the manufacturing industry in Botswana which calls for intensification of efforts by the government towards the development of this sector.

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The Telegraph September 23

Digital edition of The Telegraph, September 23, 2020.