Exporting Tips From U.S. Commercial Service Experts
Each month, we bring you market tips and insights from senior commercial officers and other highly experienced USCS team members, working first-hand in growing and established international markets. Learn about the unique qualities that make these viable markets for your international growth plan.
Market Spotlight: South Africa
In 2011, U.S. exports to South Africa totaled $7.3 billion — a nearly $3 billion increase from 2009. What makes this African republic so appealing that export growth continues to climb? See what Deputy Senior Commercial Officer Jim McCarthy has to say about South Africa's potential as a profitable trade partner for U.S. businesses.
About James M. McCarthy
Deputy Senior Commercial Officer
Johannesburg, South Africa
Jim McCarthy is currently serving as the deputy senior commercial officer in Johannesburg, South Africa. In this position, he coordinates the trade promotion efforts of several partnership posts in southern and western Africa where the Commercial Service is represented by the State Department's Economic Section. These countries include growing and active markets in Mozambique, Botswana, Angola, Zambia, Namibia, and Cameroon.
Jim began his career with the U.S. Commercial Service in 1992, first serving in Jakarta, Indonesia. He has since served in Moscow and St. Petersburg, Russia; Sydney, Australia; and San Jose, Costa Rica. While in Sydney, he also held supervisory authority over Commercial Service operations in New Zealand.
He holds a master's degree in public and international affairs from the University of Pittsburgh and a bachelor's degree in political science from St. Bonaventure University.
Spotlight on South Africa
Tell a little about your experience in the South Africa market.
I've served in South Africa for almost four years and found it to be a tremendously interesting market in terms of the wide-ranging needs both large and small U.S. exporters have for virtually all of our services — from advocacy to Gold Key partnering appointments, from single-company promotion events to trade missions.
In terms of economic development, South Africa enjoys a high-profile status as one of the BRICS [Brazil, Russia, India, China and South Africa]. And as a result of its tremendous export growth since 2009 and its strategic location as a gateway into southern Africa, it's considered a Tier II market under President Obama's National Export Initiative (NEI). U.S. exports rose from $4.4 billion in 2009 to $7.3 billion in 2011.
South Africa is also a desirable market because it's a gateway to sub-Saharan Africa, and companies often leverage the country and its companies with their vast business connections to access other markets in the region. To that end, under the Partnership Post program with the State Department, the Commercial Service in South Africa supports our embassies in southern and western Africa to offer virtually the same range of Commercial Service services that U.S. exporters traditionally count on to enter a market.
How does the South Africa market differ from the rest of Africa?
South Africa has well-developed, sophisticated banking and services sectors, the latter including retail and grocery, architectural, and engineering services. The country has arguably the best infrastructure in the region in terms of its ports, highways and rail lines, although it should make improvements to stay competitive and maintain a world-class status. U.S. companies can feel comfortable dealing with their South African counterparts, given English is a first language for both cultures and South African businesses know the sector locally and worldwide.
Are there any thriving industries or opportunities U.S. exporters should know about?
The renewable energies sector is probably at the top of the list. South Africa is embarking on an ambitious program in this sector to shift from its predominantly coal-based energy generation to solar and wind. So, it was no coincidence that of the 20 companies featured in a trade mission to South Africa last year, 11 were in this sector.
We also see opportunities in transport and infrastructure as the government turns its attention toward improvements there. Still others include IT, education and training, automotive aftermarket products, agricultural equipment and services, mining equipment and support services, medical equipment and healthcare services, waste treatment and conversion, and franchising.
Can you share some unique characteristics of the South African business culture?
A few things come to mind, in no particular order:
Strong government presence: The South African government has a sole or predominant role in several sectors, including power production and/or transmission, telecommunications, broadcasting, and transport of goods and people. The government also has strong competition and consumer protection laws.
Equal opportunity: Broad-Based Black Economic Empowerment (BBBEE, or sometimes referred to as simply "BEE") is a long-standing South African government program designed to redress the inequities of apartheid and bring about economic transformation. Companies are rated on a scale of one to eight, one representing the best or highest score. The score is based on a number of factors, including skills development, management control and enterprise development. U.S. companies should be aware of this program and the implications it could have on their partners and their business in South Africa.
Conservatism: South African customers, including the government, can be conservative and may stick to known suppliers and technologies. They may want to see the product or service proven elsewhere before introducing it locally.
Competition: South Africa is a competitive market, with China, India, the European Union, Turkey and Brazil all making strong trade pushes into the country.
European influence: Not only does the EU enjoy a free-trade agreement with South Africa, which grants tariff preferences, but South Africa also tends to lean on EU standards and regulatory and legal practices to a large degree.
Local procurement: The government wants to alleviate a high unemployment rate, currently hovering around 24%, but trending higher for those in the 18 to 24 age bracket. As a means to that end, it has embarked on a campaign to boost South African industry by emphasizing procurement of locally produced goods in the public and private sectors.
Labor: When it comes to hiring and firing, labor regulations here are stringent. Even beyond that, South Africa has a continuing skills shortage in many technical and professional fields, so the private sector is often called upon to provide additional training after hiring. In addition, strikes happen quite frequently and have affected a number of private- and public-sector companies.
Can you share some tips for U.S. businesses doing business in South Africa? What can they expect, and how can they navigate the market effectively?
Perseverance is essential. Contracts may take months or years to negotiate or conclude, so patience and perseverance are strongly advised.
Watch for legal issues and scams. Be careful what you put down in writing in legal or quasi-legal agreements, for example, an MOU [memorandum of understanding] — it could be considered binding in South African courts. Or simply make it clear that the document is not binding. Also, be on the lookout for scams or schemes whereby U.S. companies are supposedly granted contracts on an unsolicited, sole-source basis — contingent on a deposit being made. These schemes can be quite sophisticated and therefore easily misleading.
Know how BBBEE may affect your trade plans. You may want to ask what your supplier's BBBEE status is, particularly if your business may involve sales to the government.
After the sale, be prepared to show your commitment. Although this may seem obvious, South African companies will want to see the U.S. supplier commit to supporting their efforts through training, promotional material and other activities.
If I'm interested in exporting to South Africa, what should my first step be?
A great place to start is to contact us or our colleagues in the network of U.S. Export Assistance Centers (USEACs). We can help you understand and negotiate through the market to your eventual customer or partner with our advocacy efforts, market research, appointments schedules, contact lists, promotional events, and the like.
Learn more about exporting to South Africa
Get more in-depth information about doing business in South Africa. Read about market opportunities and challenges, check out upcoming events, and dive into market research — all from the USCS website.