‘Not to bet the farm’: SANLAM and internationalisation, 1995–2010

Abstract

The South African Life Assurance Company (SANLAM) entered global markets after 1990, with varied success. Contextual pressures exerted a ‘push’ on financial services companies, which led to strategic changes in firm strategy, structure and performance. Theories of internationalisation afford more attention to industrial production internationalisation. This article explores the SANLAM experiences with internationalisation since the early 1990s. Initial internationalisation attempts were less successful, leading to strategic business changes, which led to a change in the globalisation strategy and more success in alternative markets. This article explores the different stages of SANLAM’s internationalisation strategy and what determined eventual success. The article contextualises the SANLAM internationalisation strategy by drawing on aspects of the process theory, the Matthews Linkage, Leverage and Learning (LLL) framework, and the Strategy, Structure, Organisation and Performance (SSOP) analytical framework. The SANLAM case underlines the crucial role of tacit knowledge of the host market as prerequisite for successful globalisation strategies of financial services’ firms.

Keywords:

• Internationalisation
• life insurance
• emerging markets
• linking
• leveraging and learning model
• strategy

Acknowledgements

I wish to express my gratitude towards the anonymous reviewers of Business History for their constructive comments. The opinions expressed in this article are my own.

Notes

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2. Czinkota and Ronkainen, “International Business.”

3. Hetherington, Neale, Raut and Ford, Internationalization, 3–4.

4. Engwall and Wallenstall, “Tit for Tat”; Terpstra and Yu, “Determinants”; Erramilli, “Entry Mode”; Erramilli and Rao, “Choice of Foreign Market Entry”; Hellman, “The Internationalisation.”

5. Altuntas and Stölzle, “A Resource-based Perspective.”.

6. Grubel, “A Theory”; Gray and Gray, “The Multinational Bank”; Giddy, “The Theory”; Casson, “Evolution”; Jones, Bank as Multinationals; Jones Multinationals and global capitalism; Goldberg and Johnson, “The Determinants”; Heinkel and Levi, “The Structure”; Mahajan, Ragan, and Zardkoohi, “Cost Structures” ; Williams, 1997.

7. Fuchs, The Service Economy; Rugman, Inside the Multinationals; Cardone-Riportella and Cazoria-Papis, “The Internationalisation”; Capar and Kotabe, “The Relationship”; Contractor, Kundu, and Hsu, “A Three-stage Theory”; Xue, Zeng, and Lund, “The Internationalization.”

8. Venzin, Building, vii.

9. Ma and Pope, “Determinants”; Outreville, “Foreign Affiliates”; Cole and McCullogh, “A Test.”

10. Hetherington, “Internationalization,” 3.

11. UNCTAD, Internationalization of Developing-Country Enterprise, 2005.

12. Kuada, “Internationalisation,” 93; Goldstein, Multinational Companies. Goldstein also give no systematic attention to the financial services firms expanding operations outside South Africa, but only to industrial firms such as Sasol, SABMiller and Sappi.

13. Venzin, Building, 4.

14. Venzin, Building, 5.

15. Ma and Elango, “When Do International Operations”; Berry-Stölzle, Hoyt, and Wende, “Successful Business Strategies,” defined the relationship between internationalisation and corporate performance as the degree of product and international diversification. Cole, Lee and McCullough, 2009 defined internationalization as the function of organiseational, locational and industry advantages

16. Venzin, Building, 62–63.

17. Venzin, Building, 5, 8.

18. Larson, Schnyder, Westerhuis, and Wilson, “Strategic Responses,” 40–62.

19. Matthews, Dragon Multinationals, “Competitive Advantage,” 467–488, “Dragon Multinationals,” 5–27, “Response to Professors,” 153–155, “The International Entrepreneurial Dynamics,” 387–403, Energizing Industrial Development, 59–84, and “China, India and Brazil,” 5–32.

20. A response typically observed at emerging market companies, see Goldstein, Multinational Companies, 9.

21. The seminal work of Mira Wilkins, “Multinational Enterprise,” 2009, 334–363, only mentions the extension of insurance activities to Africa (and it is not specific about to which African country, but I assume most of the references are to South Africa), while by the time the article was written the two largest insurance companies in South Africa, had already entered international markets, as this article explains.

22. Hymer, The International Operations, 1976.

23. Buckley and Casson, The Future, 1976; Anderson, “The Internationalisation,” 63–92.

24. Dunning, “Explaining,” 30–64, “The Investment,” 667–676; Dunning, Multinational Enterprises; Dunning The globalization of business.

25. Dunning, “The Investment,” 667–676; Dunning, ‘Location and the multinational enterprise’, 52–54.

26. Dunning, “Reappraising,” 461–491, “The Eclectic Paradigm,” 163–190, “Towards a New Paradigm,” 173–227.

27. Dunning, and Narula, “The Investment Path.”.

28. Dunning and Lundan, “Institutions,” 573–593; Dunning and Zhang, “Foreign Direct Investment,” 1–30.

29. Melin, “Internationalization,” 99–118; Oesterle, “Time-span,” 125–149; Anderson, “The Internationalisation,” 63–92; Goerzen and Makino, “Multinational Corporation,” 1149–1169.

30. Johanson and Vahlne, “The Internationalization,” 23–32.

31. Anderson, “The Internationalisation,” 63–92; Liesch et al., “Evolving Strands,” 16–35; Schenkar, “One More Time,” 161–171.

32. Chandler, Strategy and Structure, 1962; Melin, “Internationalization,” 101–102.

33. Vernon, “International Investment,” 190–207, “The Product-cycle Hypothesis,” 255–267.

34. Johanson and Vahlne, “The Internationalization,” 23–32.

35. Rugman, Inside the Multinationals, 2006.

36. Rugman, Inside the Multinationals, 2006.

37. Matthews, “Dragon Multinationals,” 5–27; Amighini, Sanfilippo, and Rabellotti, The Rise, 5.

38. Aulakh, “Special Issues,” 237; Goldstein, “Emerging Economies,” 85.

39. Amighini et al., The Rise, 5; Matthews, Dragon Multinationals; Matthews, “Competitive Advantage,” 467–488, “Dragon Multinationals,” 5–27, “Response to Professors,” 153–155, “Catch-up Strategies,” 313–335.

40. Matthews, “Dragon Multinationals,” 8; Matthews, ‘catch-up strategies’, 331.

41. Matthews, “Dragon Multinationals,” 9.

42. Amighini et al., The Rise, 6.

43. Li, Yang, and Yue, “Identity, Community, and Audience,” 175–190; Lou and Tung, “Introduction: International Expansion,” 481–498; Bonaglia, Goldstein & Matthews, “Accelerated internationalization,”: 370–371; Cohen and Levinthal, “Absorptive Capacity,” 128–152.

44. Dunning, “Comment on Dragon Multinational,” 139–141.

45. Ge and Ding, “Determinants of Internationalisation Strategies,” 137–157.

46. Li et al., “Identity, Community, and Audience,” 175–190; Lou and Tung, “Introduction,” 481–498.

47. Ibeh, Wilson, and Chizema, “The Internationalization,” 411–420; Goldstein, Multinational Companies.

48. McCann, International, 2; Wood and Demirbag, Handbook, 2012.

49. Coates, Models of Capitalism: Growth, Models of Capitalism: Debating; Hall and Soskice, Varieties of Capitalism; Steinmo, The Evolution, 2010; Whiteley, ‘Internationalization and Varieties of capitalism’, 445–447.

50. Goedhuys, “South African,” 145–164; Verhoef, “The Dynamics,” 84–109.

51. Tschoegl, “Introduction,” 296; Fazio, “Finance, Stability and Growth,” 225; Dick and Merrett, The Internationalisation, 143–145, 154–157. OFDI activities started in the 1960s by moving operations to resource-rich, low-cost labour and capital markets (Wilkins, 1970; Wilkins, 1974, Wilkins, 1998) Emerging market OFDI commenced early in the twentieth century. (UNCTAD 2005). Since the 1990s China, Brazil, India, Russia (the so-called BRIC countries) Malaysia, Turkey and South Africa are among the countries that added significantly to OFDI growth. Although South Africa is not universally regarded as an emerging market (Hoskinson, Eden, Lau, and Wright, “Strategy”), some authors place South Africa squarely in the category of ‘emerging markets’ (Goldstein and Pritchard, “South African”; Goldstein, “Emerging Economies”; WIR, 2008). The World Bank classifies South Africa among ‘upper middle income’ countries (World Bank, 2001). South Africa can be described as a ‘unique’ example of an ‘emerging’ or ‘developing’ market in the sense that it has developed the most advanced industrialised economy on the African continent, with a highly sophisticated financial services system (Singleton and Verhoef, “Regulation”), while simultaneously a rural subsistence economy similar to other African economies, persisted into the last half of the twentieth century (Klein and Wöcke, “Emerging Markets”).

52. Singleton and Verhoef, “Regulation,” 537, 543, 545.

53. Williamson, Markets and Hierarchies, 1975.

54. Verhoef, “The Globalisation,” 99–101.

55. Halleen, From Life Insurance.

56. Verhoef, “Savings For Life,” 144.

57. Lang and Stulz, “Tobin’sq,” 1248–1280; Berger and Ofek, “Diversification’s Effect,” 39–65.

58. Verhoef, “Concentration and Competition,” 172–182.

59. See note 25.

60. Matthews, “Dragon Multinationals,” 5–27.

61. Black, Jaftha, and Burger, “Black Economic Empowerment,” 494–513.

62. SANLAM Board Meeting 19/04/1995.

63. SANLAM Board: 19/04/95.

64. Exco, 21/08/96.

65. SANLAM Board, 19/04/95.

66. SANLAM Exco, 21/08/96

67. Confidential Memorandum: Rudman; P. Steyn, 16/01/90.

68. SANLAM Board, 18/04/95; 16/08/95.

69. SANLAM Board, 31/01/96.

70. SANLAM Board, 26/02/97.

71. SANLAM Board, 15/03/95.

72. Minzberg, “The Strategy Concept,” 11–23.

73. Ibeh et al., “The Internationalization,” 411–427; Arndt, Buch, and Mattes, “Disentangling Barriers,” 41–63; Elango and Sethi, “An Exploration,” 369–392; Elango and Pattniak, “Building Capabilities,” 541–555.

74. Carson et al., “Change in Ownership Structure,” 4 ; Meador and Chugh, “Demutualization,” 11.

75. SANLAM Board, 27/05/97; 27/08/97; 15/01/98.

76. Verhoef, “The Globalisation,” 83–106; Kenneley and Verhoef, “Pressures for Change,” 136–154.

77. SANLAM Board, 7/02/01.

78. Chandler, Strategy and Structure, 1962.

79. SANLAM Annual Report, 1998: 2.

80. UBS AG, 6/09/99; See also ABN Amro Investment Analysis: Life assurance, South Africa, 11/08/2000.

81. Cazenove & Company: South Africa.

82. SANLAM Board, 1/12/02.

83. Johan van Zyl was appointed as the new CEO.

84. Stopford and Wells, Managing, 1972.

85. SANLAM Board, 4/04/04.

86. This included life and other wealth products.

87. SANLAM Annual Report, 2003: 24–26.

88. Venzin, Building, 5.

89. Matthews, “Competitive Advantage,” 467–488, “Dragon Multinationals,” 5–27, “Response to Professors,” 153–155.

90. SANLAM Exco, 23/04/98.

91. The semi-globalisation literature explains that a firm’s foreign investments follow patterns exhibiting regional aggregation and arbitrage logic to cope with the opposing pressures of globalisation (i.e. integration) and local markets (i.e. localisation).Arregle, Beamish, and Hebert, “The Regional Dimension,” 86–107.

92. SANLAM Exco. 4/6/2001.

93. Dunning, “Towards a New Paradigm,” 173–227.

94. Johanson and Vahlne, “The internationalization,” 23–32.

95. SANLAM Life Board, 16/08/95; SANLAM Board, 19/01/96; SANLAM Exco, 27/05/97.

96. SANLAM Board, 3/12/97; 1/12/99.

97. SANLAM Board, 30/4/97.

98. SANLAM Board, 13/09/2000.

99. SANLAM Board, 1/12/99.

100. SANLAM Board, 28/10/03; SANLAM Annual Report, 2005: 109–111.

101. Matthews, Dragon Multinationals, 20–21.

102. SANLAM Exco, 4/6/2001.

103. SANLAM Exco, 7/5/2001.

104. SANLAM Board, 7/3/2001; 4/6/2001; 18/6/2001.

105. SANLAM Board, 6/8/2002; SANLAM International Advisory Committee, 27/9/2002.

106. SANLAM Board, 4/12/2002.

107. SANLAM Annual Report, 2002: 16–17; SANLAM Board, 6/3/2002; 27/8/2002; 4/12/2002.

108. SANLAM Annual report, 2002: 51.

109. Matthews, Dragon Multinationals, 22.

110. Interview, J.v.Z., 10/8/2010.

111. SANLAM Board, 5/2/03.

112. SANLAM Board, 12/5/03; 22/4/04.

113. Business was restructured in five business clusters: life assurance and personal finance; investment cluster; banking cluster; short term insurance cluster and the independent financial services cluster.

114. SANLAM Annual Report, 2003: 93.

115. In 2001 the minorities in Gensec, the investment management vehicle, was bought out and Gensec Asset management was rebranded as San SANLAM lam Investment Management -SIM.

116. SANLAM Board, 6/8/03; 1/12/04; SANLAM Annual Report, 2004: 108–113.

117. Babarinde, “Africa is Open for Business”’, 2009, 319. This development was similar to the expansion of Eu insurance companies’ expansion into new EU member markets, such as Turkey; See Demirbag, Tatoglu, and Glaister, “Factors Affecting Perceptions, 5.

118. Verhoef, “Nationalism,” 694–713.

119. SANLAM Board, 1/6/05.

120. SANLAM Board, 3/8/05.

121. SANLAM Board, 2/3/05; SANLAM Annual report, 2005: 108-111.

122. Hetherington et al, “Internationalization,” 3.

123. SANLAM Board, 24/2/05; 1/6/05.

124. SANLAM Confidential Board memorandum: Capital Management, 5/3/06.

125. SANLAM Board, 8/3/06.

126. SANLAM Board, 6/9/06.

127. SANLAM Board, 6/8/06.

128. SANLAM Annual Reports, 2006, 2007, 2008.

129. SANLAM Board, 2/12/09.

130. SANLAM Board, 10/3/10.

131. Jones, and Khanna, “Bringing History (Back),” 453–468; Cuervo-Cazurra, Maloney, and Mankham, “Causes,” 709–725.

132. Wilkins, “Multinational Enterprise,” 347–348.

133. Verhoef, “The Globalisation,” 83–106.

134. Venzin, Building, 63.

135. Venzin, Building, 8.