NOTTINGHAM BUSINESS SCHOOL

IN ASSOCIATION WITH

OPEN LEARNING CENTRE

CORPORATE MANAGEMENT DEVELOPMENT PROGRAMME

COHORT 18-MBA18

STUDENT: OMEN NYEVERO MUZA

A Dissertation submitted in partial fulfilment of the requirements of the Masters

in Business Administration Degree

A study of the critical success factors and drawbacks for Cross Border
Investments: A case for the Banking Sector in Zimbabwe.

Supervisor: Mr. S. Kayereka

AUGUST 2007

1
 DEDICATION

To the memory of my late father,

To whom education in all it forms was the key.

To Tapiwa and Rutendo

Whom he wished would receive the key from me
In the same way I received it from him

To Emily for the unwavering support all the way

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 ACKNOWLEDGEMENTS

First and foremost, I would like to give glory and honour to God Almighty, the
creator of all things big and small, who made this study possible and through his
amazing grace, put it back on track when it looked like it would never see the light of
day. Secondly, I wish to acknowledge the immense contribution of Mr. Simon
Kayereka, my Supervisor whose guidance was absolutely critical to the success of the
study. His gentle, constructive criticism spurred me to do my best and not give up.
Thirdly, I acknowledge the immeasurable support structure of my family, especially
Emily Muza my wife, who endured three years of “social neglect” and hard work
culminating in this dissertation.

I wish to thank my colleagues from other banks, some as far afield as Mozambique
and Tanzania, who took time off their busy schedules to respond to my questionnaire
and put up with my constant nagging as I followed up the completed questionnaire. I
also acknowledge the contribution of respondents from the Reserve Bank of
Zimbabwe who gave the study an insight into the regulator’s view of cross-border
investments.

Lastly, I also wish to recognise the footsteps of all those who have walked this path
before me, in particular Paul L. Manning who in partial fulfilment of his MBA
studies at Rushmore University carried out a case study on African Banking
Corporation in 2002. This study draws considerably from his.

3
 OPEN LEARNING CENTRE

AFFIRMATION OF OWN WORK

This dissertation titled: “A study of the critical success factors and drawbacks for
Cross Border Investments: A case for the Banking Sector in Zimbabwe” is the
result of my own work. Primary and secondary courses of information and
contributions to the work by third parties, other than my tutors, have been fully and
properly attributed. Should this statement prove to be untrue, I recognise the right and
duty of the Board of Examiners to take appropriate action in line with the Nottingham
Trent University’s regulations on assessment.

First Names: Omen Nyevero

Surname: Muza

Cohort: MBA18

Signed:………………………….

4
 ABSTRACT

This is a report of the study of cross border investments by Zimbabwean banks in the
context of the critical success factors and the drawbacks that they encountered. It
opens with an outline of the operating environment characterised by intensified
competition against the background of shrinking economic activity, foreign currency
shortages and worsening macro-economic fundamentals. The macro-economic
environment is shown to be characterised by hyperinflation, high interest rates, lack of
balance of payments support and withdrawal of international lines of credit. Against
this background regional expansion strategies emerge as a measure to mitigate the
impact of the impact on the profitability of banks. The report compares the investment
climate of Zimbabwe, noting that the economic policies of its regional peers are more
attractive and provide Zimbabwean companies perfect platform from which they
could access global capital markets at competitive rates and expand into the rest of
Africa.

A history of cross border investments in Zimbabwe follows, outlining the individual

experiences of African Banking Corporation Limited (ABC), Kingdom Financial
Holdings Limited (KFHL), Barbican Holdings Limited (BHL), Century Bank Limited
(CBL), Intermarket Holdings Limited (IHL), ZB Financial Holdings Limited (ZB
FHL), Metropolitan Bank Limited (MBL) and ReNaissance Financial Holdings
Limited (RFHL). A concern about the poor performance of these investments arises
from this history and forms the basis for the research problem. The aim of the study is
therefore to establish the critical success factors and drawbacks for cross border
investments. A statement of the research objectives based on the concepts of entry
mode, capitalisation, timing, cultural distance and regulatory controls, leads to
the hypothesis that “A successful cross border investment is dependent on enabling
exchange/regulatory controls; an appropriate entry mode; proper timing, adequate
capitalisation and conducive cultural/business practices in the host country.”

A review of literature is undertaken so that the study can build on and be informed by
the knowledge base that already exists. The literature review encompasses the
different concepts relating to cross-border investments such as the driving forces of
cross-border investments, their timing, and the choice of entry mode. The impact of

5
culture, international experience and the business environment in the host country is
also discussed. Also outlined are the benefits of cross-border investments, leading to a
conceptual framework suggesting how the identified concepts link among themselves
and with the performance or success of cross-border investments.

Since the author’s quest is to establish the link or recurring patterns of association
between various the concepts to the performance of cross border investments, he
adopts a positivist research philosophy. The author settles for a deductive approach
for the research because according to Saunders et al (2003, p.85) this approach, in
which you develop a theory and hypothesis and design a research strategy to test the
hypothesis, owes more to positivism. The survey method is chosen because according
to Saunders et al (2003, p.92) it is usually associated with the deductive approach and
also because it is perceived as authoritative, is easily understood and gives the
researcher more control over the research. A sample of 30 people from banks and the
Reserve Bank are selected in line with what Saunders et al (2003, p.176) call
purposive or judgemental sampling, which enables you to use your judgement to
select cases that will best enable you to answer your research questions. A self-
administered questionnaire was employed because Fisher (2004, p.25) argues that if
you are doing positivist research, the questionnaire is obligatory. Limitations were
encountered mainly in the form of lack of imperative literature on cross border
investments and the fact that the sample was fairly narrow, which might result in bias.
The challenges in getting information are also noted as respondents from both the
Reserve Bank and banks felt the information was of a strategic, therefore sensitive
nature.

The data gathered is presented in the form of graphs, pie charts and tables. The major
findings were that in choosing a host country, Zimbabwean banks were mainly
motivated by the desire to access new (regional and international) markets and lured
by favourable economic policies. The major obstacles faced were cultural differences,
alien (and sometimes less sophisticated) business environments and inadequate
capitalisation. Most of the cross border investments were by means of the greenfield
entry mode and were undercapitalised form the onset hence all of them faced capital
inadequacy problems in one form or another at some point. Moving early into a
foreign market is recognised as competitive action conferring first mover advantages

6
in relation to home country rivals. Home country exchange controls are found to be a
constraining factor for the cross border investment activities of Zimbabwean banks
though these banks did not face similar controls in the host countries because most of
the countries have liberalised exchange control regimes, which in fact is one of the
key attractions for the banks. The common finding is that both the banks and the
Reserve Bank agreed that the search for new markets and the attraction of favourable
economic policies are the major factors motivating Zimbabwean banks to invest in
specific countries.

Evaluation of the major research findings in relation to the conceptual framework and
the research objectives validates the hypothesis that “A successful cross border
investment is dependant on enabling regulatory/exchange controls; an appropriate
entry mode; proper timing, adequate capitalisation and conducive cultural/business
practices in the host country.” The report suggest further areas of research such as
establishing why most of the investments were Greenfield as well as an investigation
of the cost implications of the mode of entry chosen. An investigation of the cost
structures of the regional investments is also noted as a possible area of interest.

The report makes various recommendations such as the tightening of approval

requirements with regard to adequate capitalisation and the loosening the regulations
to allow Zimbabwean banks to borrow offshore for purposes of adequately funding
their regional operations, given the biting foreign currency shortages in Zimbabwe. It
is also recommended that the RBZ must put in place a specific and clearly defined
framework to monitor and evaluate the performance of cross border investments as
current initiatives appear to be inadequate. The RBZ is also urged to prioritise its
onsite examination of foreign subsidiaries of Zimbabwean banks, which is currently
not taking place reportedly due to constrained resources.

The overall conclusion is that cross border investments by Zimbabwean banks have
largely been unsuccessful despite isolated cases of good performance such as that of
mance of ABC, which has now overcome its challenges and appears poised for
significant growth. Other players such as KFHL and RFHL are however beginning
to reposition themselves after some false starts.

7
 TABLE OF CONTENTS

1.0 BACKGROUND INFORMATION………………………………………….12

1.1.0 Introduction……………………………………………………………….12
1.2.0 Operating Environment…………………………………………………...12
1.2.1 Competitive Environment…………………………………………….12
1.2.2 Macro-economic environment…………………………………...........14
1.2.3 Zimbabwe’s Investment Climate Compared to Regional Peers………16
1.3.0 History of Cross-Border Investments in Zimbabwe………………………18
1.3.1 African Banking Corporation Limited (ABC)………………………...19
1.3.2 Kingdom Financial Holdings Limited (KFHL)………………………..24
1.3.3 Barbican Holdings Limited (BHL)…………………………………….27
1.3.4 Century Bank Limited (CBL)………………………………………….31
1.3.5 Trust Holdings Limited………………………………………………...32
1.3.6 Intermarket Holdings Limited (IHL)…………………………………..33
1.3.7 ZB Financial Holdings Limited (ZB FHL)…………………………….33
1.3.8 Metropolitan Bank Limited (MBL)…………………………….............35
1.3.9 ReNaissance Financial Holdings Limited (RFHL)…………………….36
1.4.0 Research Problem…………………………………………………..............38
1.5.0 Aim of the Study…………………………………………………………...38
1.6.0 Research Objectives………………………………………………………..38
1.7.0 Research Questions………………………………………………………...39
1.8.0 Hypothesis………………………………………………………….............39
1.9.0 Significance of the Study…………………………………………………..39
1.10.0 Chapter Outline…………………………………………………………...40

2.0 LITERATURE REVIEW……………………………………………………...42

2.1.0 Introduction………………………………………………………….……..42
2.2.0 Definition of Cross Border Investments/FSFDI/FDI………………………42
2.3.0 Driving Forces of Cross Border Investments…………………………........43
2.3.1 Defensive Expansion Theory…………………………………………..43
2.3.2 Liberalisation and Cross Border Consolidation……………………….43
2.3.3 Competitive forces/ Industry Rivalry………………………………….44
2.4.0 The Timing of Cross Border Investments…………………………………45
2.5.0 The Choice of Entry Mode………………………………………………...46
2.5.1 High vs. Low Control Mode…………………………………………...50
2.5.2 Centralisation of Decision Making…………………………………….51
2.6.0 Culture……………………………………………………………………...51
2.6.1 Organisational Culture…………………………………………………51
2.6.2 Cultural Distance……………………………………………………….52
2.7.0 International Experience……………………………………………………53
2.8.0 Business/Regulatory Environment in the Host Country…………………...54
2.9.0 Benefits of FSFDI………………………………………………………….55
2.10.0 Conceptual Framework……………………………………………….......56

3.0 METHODOLOGY………………………………………………………..........57
3.1.0 Introduction………………………………………………………………..57
3.2.0 Research Philosophy……………………………………………………….57
3.3.0 Research Approach………………………………………………………...58
3.4.0 Research Strategy………………………………………………………….60

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 3.5.0 Sample……………………………………………………………………...61
3.6.0 Method of Gathering Data…………………………………………………61
3.7.0 Limitations…………………………………………………………………63
3.8.0 Reliability and Validity…………………………………………………….64

4.0 DATA ANALYSIS……………………………………………………………...66

4.1.0 Introduction………………………………………………………………...66
4.2.0 Questionnaire for Banks……………………………………………………66
4.3.0 Questionnaire for the Reserve Bank of Zimbabwe (RBZ)…………………78
4.4.0 Summary of Findings………………………………………………………86
4.4.1 Major Findings………………………………………………………....86
4.4.2 Common Findings……………………………………………………...87
4.4.3 Unique Finding.………………………………………………………...87

5.0 INTERPRETATION…………………………………………………………...88
5.1 Introduction…………………………………………………………………..88
5.2 Major Findings………………………………………………………….........88
5.2.1 Choice of Entry Mode………………………………………………….88
5.2.2 Culture and Cultural Distance……………………………………….…90
5.2.3 Regulatory Controls……………………………………………………92
5.2.4 Capitalisation…..……………………………………………………….94
5.2.5 Timing of Cross Border Investments and International Experience…...97

6.0 CONCLUSION……………………………………………………………........99
6.1 Introduction…………………………………………………………………..99
6.2 Gaps and Hypothesised Relationships……………………………………….99
6.3 Areas of further Research………………………………………………….. 102

7.0 RECOMMENDATIONS…………………………………………..………… 102

7.1 Introduction……………………………………………………………........103

7.0 IMPLEMENTATION ISSUES………………………………………………105

9.0 REFERENCES………………………………………………………………..106

9
 LIST OF APPENDICES

Appendix 1: List of Banking Institutions as at 24 January 2006

Appendix 2: ABC Holdings Limited’s Investments in subsidiaries

and Associates

Appendix 3: ABC Holdings Limited Group Structure

Appendix 4: Kingdom Bank Africa Limited Organisational

Structure

Appendix 5: Barbican Holdings Limited Group Structure

Appendix 6: RFHL Group Structure

Appendix 7: Five-year financial highlights for ABC

Appendix 8: New Minimum Capital Requirements

Appendix 9: Questionnaire for Banks

Appendix 10: Questionnaires for the Reserve Bank

10
LIST OF FIGURES

Figure 1: Origin of Resources employed in Alternative Entry Modes

Figure 2: Origin of Resources employed in Alternative Entry Modes
Figure 3: Conceptual Framework for Performance of cross border investments
Figure 4: The hypothetico-deductive method
Figure 5: Cost to income ratios of ABC

ACRONYMS

BLSS Bank Licensing Supervision and Surveillance

EMEs Emerging Market Economies
FDI Foreign Direct Investment
FSFDI Financial Sector Foreign Direct Investment
GCR Global Credit Rating
GDP Gross Domestic Product
IAS International Accounting Standards
IFC International Finance Corporation
IFSC International Services Centre Financial
IMF International Monetary Fund
LSE London Stock Exchange
MK Malawi Kwacha
MNEs MultiNational Enterprises
MSE Malawi Stock Exchange
RBZ Reserve Bank of Zimbabwe
ZSE Zimbabwe Stock Exchange

11
CHAPTER 1.0: BACKGROUND INFORMATION

1.1.0 Introduction

This chapter outlines the nature of the operating environment for financial institutions
in Zimbabwe and how it has tended to influence decisions to seek cross border
banking activities. The history of cross border activity is given in the context of those
financial institutions that sought to internationalise their operations. The chapter
further states the research problem, which is that most of these regional endeavours
appear to have failed to achieve the intended consequences. The aim of the study is
therefore to establish the critical success factors and drawbacks for cross border
investments in the banking sector in Zimbabwe. This is followed by a statement of the
research questions and objectives which in turn lead to the hypothesis that “a
successful cross border investment is dependent on enabling exchange controls in the
country of origin; an appropriate entry mode; proper timing, adequate capitalisation
and an understanding of the cultural aspects affecting business practices in the host
country.” The chapter then looks at the significance of the study and closes with a
chapter outline.

1.2.0 Operating Environment

1.2.1 Competitive Environment
The operating environment for financial institutions in Zimbabwe has been
significantly challenging for close to seven years. This intensified competition in the
sector as the number of players increased against the background of a shrinking
economy. According to the Reserve Bank of Zimbabwe Bank Supervision Report of
(2002), “The decline in profitability reflects the current harsh economic environment,
where operating costs continue to escalate without the corresponding income
streams, against the background of a shrinking economic activity, foreign currency
shortages, unavailability of assets to finance, closures and or downsizing by most
firms.” Mwega (2002) reports that in the mid-1990s, Zimbabwe had six (6)
commercial banks, six (6) merchant banks, four (4) discount houses, five (5)
registered financial institutions and four (4) building societies. According to the
Reserve Bank of Zimbabwe (2005), as at 30 April 2005, the total number of banking
institutions was twenty-eight (28) comprising twelve (12) commercial banks, four (4)

12
merchant banks, five (5) discount, four (4) finance houses and three (3) building
societies. The Herald (March 2005) reported that the increase in the number of
banking institutions from 9 in 1980 to 28 had generated a lot of debate on whether or
not the Zimbabwean economy is over-banked. The Reserve Bank of Zimbabwe
(2006) further says that as at 24 January 2006, the number of banking institutions had
in fact grown to thirty two (32), made up of fourteen (13) commercial banks, five (5)
merchant banks, five (6) discount houses, three (4) finance houses and four (4)
building societies. See Appendix 1 for a list of the above banking institutions. As at
that date, the country also had 18 asset management companies, 36 micro-finance
institutions and 177 money-lending institutions. In order to diversify revenue streams
under these competitive conditions, a number of banks sought to establish a presence
in neighbouring regional countries and in extreme cases in overseas countries such as
Malaysia and the United Kingdom. In its Annual Report of 2002, the Banking
Supervision Division of the Reserve Bank of Zimbabwe said, “The emergence of
banking groups, which commenced in earnest in the past three years, has also
continued in 2002 to include regional expansion strategies. Initiatives to expand
regionally emerged against the backdrop of much stiffer competition on the local
market due to the entry of new players into the banking sector. The general desire to
improve foreign currency inflows into the country has also contributed to this
development.” While it appears that most banks had genuine reasons for embarking
on regional expansion projects, some banks appear to have done so merely as some
kind of fashion statement. The Financial Gazette (September, 2006) appeared to
confirm this when it said “there was a time when ‘going into the region’ was
fashionable talk among Zimbabwean bankers. However, few have found real
success.”

13
1.2.2 Macro-economic environment
Manning (2002), an MBA candidate at Rushmore University who carried out a case
study on African Banking Corporation, chronicles political and economic
developments that were unravelling at the time most Zimbabwean banks made or
were making decisions to embark on cross-border investments:

Late 1997 saw social unrest, a currency crisis and an unsettled commercial farming
sector that had traditionally been one of the mainstays of the economy. Sharp
increases in interest rates took place as Government tried to address the loss of
confidence in the local currency unit, and these rate hikes impacted negatively on the
business sector. Lack of confidence was compounded by the collapse of United
Merchant Bank in 1999. Inflationary pressures escalated when Zimbabwe sent troops
to the Democratic Republic of Congo (a country with which it shares no common
border). This precipitated the International Monetary Fund (IMF) to withhold
balance of payments support, an action that impacted on the Zimbabwe dollar and
increased interest rates again. Inflation rose from 19% in 1997 to over 30% in 1998.
By October 1999, year-on-year inflation reached 70.4% and interest rates moved to
above 65%. (The existence of hyperinflation as defined by International Accounting
Standard 29 (IAS 29) was identified in Zimbabwe in November 1999). In 1999 the
IMF suspended all disbursements to Zimbabwe. International banks withdrew credit
lines, suppliers tightened their settlement terms and the shortage of foreign exchange
caused a crisis of significant proportions. Even fuel stocks ran dry and the lack of
diesel did not help in the distribution of food or help to increase agricultural
production.

The decline has continued unabated over the years, to the present state of the
economy, sometimes described as the fastest declining economy outside a war zone.
Presenting its Unaudited Financial Statements for the half-year ended 30 June 2007,
Stanbic Bank Zimbabwe Limited outlined the current operating environment:
• The annual inflation for June 2007, as supplied by the Reserve Bank of
Zimbabwe, stood at 7251% up from 1281% in December 2006
• Average Prime Lending Rates increased from 450% in December 2006 to over
550% in June 2007

14
• The official exchange rate has remained pegged at ZWD250 to the USD,
thereby constraining trade in the official market. However, with effect from 27
April 2007, foreign currency transactions with the Reserve Bank of
Zimbabwe’s Drought Mitigation and Economic Stabilisation Fund are done at
ZWD15, 000 to the US dollar.
• The Manufacturing Sector survey report by the Confederation of Zimbabwe
Industries published in May 2007 indicated that average capacity utilisation
was around 30% compared to 33% as of June 2006
• The Zimbabwe Crop Assessment report by the Food & Agricultural
Organisation and World Food Programme published in May 2007 indicated
that Zimbabwe has a 46% deficit in cereals in 2007
• During the first five months of 2007, major minerals including gold, nickel
and coal recorded significant declines in production. Platinum is, however the
only mineral that recorded growth at 14%
• Concern and general anxiety greeted the publication of the Indigenisation and
Economic Empowerment Bill in June 2007.

15
1.2.3 Zimbabwe’s Investment Climate Compared to Regional Peers
Jenkins and Thomas (2002) cite Mowatt and Zulu (1999), who reported the findings
of a survey of South African firms investing within Eastern and Southern Africa. The
survey rated the economic policy framework highly in Botswana, Mozambique and
Namibia but poorly in Zimbabwe. Financial factors such as exchange controls,
depreciation of the currency and high interest rates, were found to be barriers in
Zimbabwe and, to a lesser extent, in Mozambique but not in Botswana and Namibia.
Yet according to a study carried out by Jenkins and Thomas (2002) on the
determinants of foreign direct investment, the indicators which have been found most
frequently to be correlated with increased FDI (Foreign Direct Investment) in Africa
in cross-country macroeconomic analyses are: economic openness, especially to
international trade; the quality of institutions and infrastructure in the host
economy; and economic growth and stability. The same report shows that inflows
of FDI as a percentage of GDP for Tanzania and Zambia increased in the second half
of the 1990s: for Tanzania, the increase followed the implementation of broad
economic reforms, which included the privatisation of state-owned enterprises.
Similarly in Zambia, economic reform and privatisation have played a role in
encouraging investment. Zimbabwe on the other hand was noted to have experienced
relatively low levels of direct investment in comparison with most regional peers
given the level of economic instability and political uncertainty facing the country,
factors which were identified as threats to substantial new inflows of direct
investments in the short to medium term.

Jenkins and Thomas (2002) argue that the combination of uncertainty created by a
depreciating currency and lack of access to foreign exchange was found to be
particularly acute for those enterprises operating in Zimbabwe at the time of the
survey as most firms reported severe difficulties in acquiring foreign exchange, either
for importing inputs for production or for repatriating earnings. It is suggested that the
phasing out or scaling down of exchange controls on non-residents in those countries
where they remain, together with ensuring the availability of foreign exchange is
essential to attracting investment.

The policies pursued by government, particularly in respect of human and property

rights, increased Zimbabwe’s isolation and also it’s country risk profile. Richardson

16
(2004) says that between 1998 and 2001, foreign direct investment dropped by 99%
and in addition, the World Bank risk premium on investment in Zimbabwe jumped
from 3.4% to 153.2% by 2004. Jenkins and Thomas (2002) suggest that one reason
why outside perceptions matter to firms is that raising finance for investment may
become more difficult or costly where foreign bankers and institutional investors
perceive the country to be unstable. Credit committees of bilateral lenders such as
foreign banks instructed their lending units not to consider any applications for
facilities from Zimbabwean banks. Zimbabwean banks were therefore unable to
underwrite significant new foreign currency related business.

This shortage of foreign currency, increasing controls and the high-risk profile are
some of the reasons often advanced by banks, mainly the indigenous banks, which
have set up operations in various regional countries where the business environment is
more favourable. This enables these banks to access offshore lines of credit and also
to launch other regional projects in environments that are less restrictive in a
regulatory sense. The Financial Gazette (August, 2006) agreed that “Zimbabwean
businessmen seeking a global reach have been have been moving out of Zimbabwe in
recent years. ABC, headed by Doug Munatsi, has a primary listing in Gaborone
Botswana, where the merchant bank sees better potential to launch into Africa.”
Jenkins and Thomas (2002) indicate that South Africa for instance, can be seen to act
as a natural base for expanding into the region because of its more developed business
infrastructure with respect to the banking system and capital markets. Some of the
banks whose operations are reviewed in this report, namely Barbican Holdings
Limited, ABC Holdings Limited and Century Bank set up offices in South Africa.
Senior Econet Wireless Group executive Zachary Wazara was quoted by the Financial
Gazette (August 2006), saying, “If we need to raise US$100 million in a few days we
can do it from South Africa and nowhere else in Africa at the moment.”

17
1.3.0 The History of Cross Border Investments in Zimbabwe
It is pertinent to note that this study focuses on the indigenous banks, as they are the
ones that engaged in cross-border banking activities. This is explained by the fact that
the expansion strategies of partly or wholly foreign owned banks, namely Standard
Chartered Bank Limited, Barclays Bank Limited, Stanbic Bank Zimbabwe Limited
and MBCA Bank Limited, are implemented from their respective Head Offices in
London and South Africa hence they fall out of the scope of this study.

Established in October 1992 and registered as an accepting house and merchant bank
in June 1993, National Merchant Bank of Zimbabwe Limited (now NMB Bank
Limited) was the first truly indigenous financial institution after the liberalisation of
Zimbabwe’s economic and financial sectors in the early 1990s. The continued growth
of the bank created the opportunity for a public floatation of the group, and in early
1997, the NMBZ Group broke new ground when it secured a secondary listing on the
London Stock Exchange (LSE), simultaneously listing on the Zimbabwe Stock
Exchange (ZSE) where it has a primary listing. It is important to note that the bank
has no actual operations in London. According to the NMB Bank Limited website
www.nmbz.co.zw (1997), the offer, which was 4.5 and 2 times oversubscribed in
Zimbabwe and London respectively, substantially enlarged the capital base of the
group for the purpose of providing greater flexibility in funding NMB Bank’s lending
activities, reduced the overall cost of such funding, and diversified its loan portfolio.
The listing on the LSE was also for strategic reasons in terms of enhancing the image
and international profile of the bank while raising foreign denominated capital.

Thereafter, more indigenous players came into existence and went further than what
NMB Bank had achieved by establishing operations in various SADC countries such
as Botswana, Malawi, Mozambique, Tanzania, Uganda and Zambia. Of these
institutions, ABC Holdings Limited appears to have performed better than the rest of
the other local banks on the basis of the number of countries in which it has
operations and also judging from the success of its significant capital raising activities
in the international arena.

18
1.3.1 African Banking Corporation (ABC)
African Banking Corporation (ABC) is the brand name of ABC Holdings Limited,
which is registered in Botswana. The group has a primary listing on the Botswana
Stock Exchange and a secondary listing on the Zimbabwe Stock Exchange. According
to the Botswana International Financial Services Centre IFSC (2006), it operates in
Botswana, Mozambique, Tanzania, Zambia and Zimbabwe and has an office in South
Africa. See Appendix 2 extracted from ABC Holdings Limited’s financial statements
for the year ended 31 December 2006 for the group’s investments in subsidiaries and
associates. See also Appendix 3 for the Organisational Structure of ABC. According
to the Zimbabwe Independent (July 2006) ABC was created out of Africa’s need for a
financial services institution to address the business and private financial requirements
of the increasingly global African business community.

The ABC group was created in February 2000. The Reserve Bank of Zimbabwe’s
Bank Supervision Report (2000) had this to say about the events leading to this
merger, “Deposit taking institutions have been restructuring and reorganising to
refocus and consolidate their operations in order to fully exploit opportunities while
cushioning themselves against threats to viability, due to increasing competition.
FMB Holdings, UDC Holdings, the Bard Group of companies and some international
organisations, merged their businesses during the year, to from African Banking
Corporation (ABC), which is now dually listed on the Botswana and Zimbabwe Stock
Exchanges.” These companies had diverse banking and financial interests and were
represented across six countries in southern and central Africa. Amongst them, they
had interests in capital markets, treasury products, investment banking, hire purchase,
lease finance, insurance premium finance, factoring, medium-term collateralised
loans, stock broking, and dealing in domestic bond and equity markets, asset
management and unit trusts. According to Manning (2002) an MBA Candidate at
Rushmore University who carried out a case study on ABC, the combined group
identified that it could compete with other established commercial banks by operating
outside of those banks’ core business lines. The resulting business would focus solely
on merchant banking, asset management and leasing, the areas where it had core
strengths. ABC was therefore focused on being a niche player.

19
ABC’s strategy would be to build upon the five businesses represented by UDC
regional companies. Quoted by the Herald (June 2007), the Group CEO of ABC,
Douglas Munatsi said, “Our strategy is to expand into the region as we seek to
consolidate our market share.” The growth would be organic and transaction driven
in order to minimise up-front costs to the bank. ABC would be the first to operate as
an International Financial Services Centre (IFSC) company, under the newly amended
Income Tax Act in Botswana. An IFSC company benefits from a liberal tax
environment, no foreign exchange controls, and, in Botswana’s liberalised
economy, access to global capital markets at competitive rates.

Manning (2002) argues that one of the main reasons ABC embarked on the
restructuring that resulted in its cross-border activities was the changing conditions
which the group needed to respond to. The legislative changes that resulted in the
enactment of the Botswana IFSC provided an opportunity to take advantage of a
favourable investment environment. On the other hand, the bureaucratic
regulations in the banking environment in Zimbabwe were becoming increasingly
onerous as the authorities grappled with the sliding economy. UDC’s established
business platform in five other regional countries offered immediate cross-selling
opportunities for merchant banking products to be introduced by ABC, which could
therefore penetrate target markets more quickly than other prospective new entrants.
The establishment of Botswana as an International Financial Services Centre (IFSC)
was an opportunity for ABC to benefit from a liberalised tax environment offering a
variety of fiscal incentives such as exemption from tax on 1) dividends received from
a foreign party, 2) income received from a foreign branch; and the application of tax
credits for any tax payable under the laws of the country from which gross income
accrued, set off against the special low IFSC tax rate of 15% whether or not a double
tax agreement exists between Botswana and that country.

Manning (2002) further says that the currencies in three of the six countries in which
there was representation were convertible into hard currency so this had significant
appeal to the ABC management since it provided a hedge and some stability to the
volatile circumstances that they were facing at home. While Zimbabwe housed the
head office and largest business base, it did not have a convertible currency.

20
Manning (2002) also says that ABC has strong deal placement and distribution
capability based on its shareholders, lenders and unique links to investment funds.
These historical links, particularly to international players such as the International
Finance Corporation (IFC), the Swiss Confederation (Swiss Government) and
development agencies from Germany (DEG), from Sweden (Swedfund), from Britain
(CDC) and France (Proparco) are unique to the regional market. These shareholders
had a sound perspective of the economics of the region and supported the group with
developmental finance such as making hard currency lines of credit available to
exporters. The IFC (an arm of the World Bank) for instance, acquired a 10%
shareholding in the holding company FMB Holdings Limited (FMBH) in 1990.

According to the ABC Holdings Limited’s 2006 Annual Report (2007, p.6) the group
successfully raised USD60 million from National Development Bank of Botswana
(NDB) and BIFM Capital by way of medium to long-term debt during the second half
of 2006. USD12 million was injected into its subsidiaries as Tier 1 capital and this
was to be repaid to the lenders though dividends from the subsidiaries. A further
USD20 million was injected as Tier II capital in 2007. As a result all banking
subsidiaries were expected to have capital of at least USD15 million by end of 2007.

In early August 2007, ABC announced a transaction for the proposed subscription
and issue for cash of 10% of the issued share capital of ABC Holdings Limited to the
International Finance Corporation (IFC). Under the transaction, IFC would subscribe
and pay for 14 729 853 shares for a purchase price of BWP39 770 603.00 (USD6,
451,031 at an exchange rate of 6.1650 used on 8 August 2007). As an integral part of
the subscription transaction, the IFC would make available to ABC a seven-year
convertible term loan of USD13, 548,969.00. The notice said that the purpose of the
loan would be to provide the company with funding to be used exclusively to on
lend to African Banking Corporation Botswana Limited, African Banking
Corporation Mozambique SARL, African Banking Corporation Zambia Limited, as
Tier II Capital, which operating subsidiaries would in turn use to finance loans to their
clients. The benefits of the transactions were outlined as follows:
• The funds arising from the subscription would bolster the capital of the
Company to be used for regional expansion and working capital requirements

21
 • The funds from the Convertible Loan would provide additional resources to
the operating subsidiaries of the company to on lend to clients in countries of
operation, thereby expanding the business of the operating subsidiaries
• The subscription and loan, with its convertibility anchors a collaborative
partnership with a new investor which would strengthen and expand the
Group’s footprint
• The transactions would result in a pooling of expertise in certain critical
specialist areas such would derive considerable benefit from the IFC
relationship pooled resource base
• The broadened shareholder base, brought about by the subscription and
potential conversion would afford the Group access to preferential facilities.
The closure of this deal was subject to shareholders’ approval, resulting in a total
injection of USD20 million. The Board was at that time also evaluating the prospect
of a private placement.

Quoted by the Financial Gazette (September, 2006), Douglas Munatsi, the Chief
Executive Officer (CEO) of ABC said of the group’s regional activities, “One of the
things that we have decided is that we will never ever start a bank without US10
million in capital… because you really have to stand on the strength of your brand
and the strength of your capital. Starting a business with a US$2 million capital like
we did is just untenable, especially if it’s compounded by the Zimbabwe contagion.
Capital is you last line of defence, if you are weak on your last line of defence, you
don’t have a defence at all. We had a slight advantage over other banks, to be fair.
Yes, we inherited very sick institutions, but they were there. Going Greenfield in a
market in which you really are perhaps the smallest player, is not easy at all.
People must be realistic about cross-border business.” Manning (2002) quotes the
ABC Offer Document (1999, p.21), which says “The capital on our balance sheet will
give us significance and pre-eminence in our regional market.”

1.3.1.1 Strategic Shift and Prospects.

In its Unaudited Interim Group Results for the six months ended 30 June 2007, ABC
Holdings Limited announced that the group was embarking on an ambitious growth
path, which would be underpinned by an aggressive retail banking roll-out, resulting

22
in an expansion in the product range and branch network. This shift from the earlier
focus on merchant banking, asset management and leasing to retail banking was in
recognition of the changing environment. The ABC Annual Report (2006) noted that
following the injection of capital into the subsidiaries the Group’s medium term
ambition is to position all banking operations into the top tier of every market that it
operates in. This would be achieved by expanding the product range and networks
to meet the organic growth demands. Where opportunities arise, the Group would
seek to pursue acquisitions, which would enhance both the balance sheet and
earnings. The report also noted that the Group had now dealt with the perennial
problems of bad debts, cash flow and lack of capital and was poised for significant
growth.

According to the ABC Annual Report (2006), Global Credit Rating (GCR) awarded
ABC Holdings Limited an improved rating of BBB for long-term debt and a rating of
A3 for short-term debt. The Group welcomed this development as it was expected that
the rating would translate into stronger deposit mobilisation for the whole group.

23
1.3.2 Kingdom Financial Holdings Limited (KFHL)

For its regional investments, KFHL concentrated mainly on three countries namely
Zambia, Malawi and Botswana. According to African Business Journal (2004), “The
Group was astute enough to hedge itself against the volatile economic environment
at home by diversifying its income base and doing business in other African
countries.”

1.3.2.1 Malawi
In Malawi, KFHL secured a 25.1% stake in First Discount House, formed in 2002
with three other investors – Press Corporation Limited (PCL) (30%), TF Mpinganjira
Trust (24.9%) and Old Mutual Life Assurance (Malawi) Limited (20%). As at June
2007, FDH controlled 50% of the market share and its only competitor is Continental
Discount House established in 1998. KFHL also had management and information
technology contracts for this investment. In November 2006, Press Corporation
Limited, the single largest shareholder pulled out of the joint venture after being
persuaded to sell its shareholding because FDH was finding it difficult to move into
areas where PCL had an interest, resulting in conflict of interest. PCL shares were
bought for K90 million and shared equally between KFHL and TF Mpinganjira Trust,
which became the second largest shareholder with 39.84% while KFHL assumed
control of the company with a stake of 40.16%.

In June 2007, The Zimbabwe Standard reported that KFHL would reduce its
shareholding in First Discount House as the company embarked on a capital raising
initiative to raise US$1.5 million ahead of listing on the Malawi Stock Exchange
(MSE) in August 2007. KFHL was set to reduce its shareholding to 28.11% while TF
Mpinganjira Trust and Old Mutual Life Assurance (Malawi) Limited would remain
with 27.89% and 14% respectively, with 30% of the shares open to the public. FDH
would undergo an Initial Public Offering to raise US$1.8 million to finance the setting
up of a merchant bank. Board approval for the listing of the discount house on the
Malawi Stock Exchange was granted on 12 June 2007.

According to the Audited Financial Statements for the Year Ended 31 December
2006, FDH’s profit after tax increased by 44% from MK61.1 million in 2005 to

24
MK88.2 million in 2006, while trading assets increased 17% from MK5.4 billion to
MK6.4 billion in 2006. It was reported that these results were achieved under a very
difficult operating environment in which trading margins were substantially
reduced, as a result of declining money market yields, increased competition for
client funds among firms providing the same services, and reduced Government
borrowing. The cost to income ratio came down from 55% in 2005 to 49% in 2006.

1.3.2.2 Zambia

According to the Financial Gazette (March 2007) the company also invested in
Investrust Bank Zambia where it acquired 25% of the share capital and stationed only
one executive running the treasury department without a management contract.
Albert Nduna, the CEO of insurance group Zimre Holdings Limited (ZHL) was once
asked by BusinessOnline (2006) why his company appeared to be more interested in
getting management contracts when investing in regional projects instead of getting
equity. His response was that the upfront investment required in a management
contract is low and the company gets exposure to the relevant markets. KFHL
seeks to increase its shareholding in regional investments where it does not have
overall management control hence the group had an initial agreement to review its
shareholding in Investrust upwards after one year and to secure a management
contract. In 2004 the Zambian shareholders refused to honour this agreement and
KFHL pulled out of the investment, managing to recover its initial investment of
US$971,000.00. Bank for International Settlements (BIS) (2004) argue that
frequently studies assume ownership of 50% of outstanding equity as the threshold for
control. Kingdom therefore disinvested from Zambia, but recognising the immense
potential in the country, indicated its desire to start a wholly owned bank, and for
some time negotiated for a 100% acquisition. This is consistent with Zhao and Decker
(2004)’s argument that firms having started to enter into a market may change their
original strategy due to learning effects or unscheduled developments. The funds
recovered from Investrust had been earmarked for re-investment in Zambia but in
March 2006, it was announced that the capital would now be channelled to Botswana
to bolster operations through the injection of equity funding into Kingdom Bank
Africa Limited.

25
1.3.2.3 Botswana

In 2002, KFHL established a representative office in Botswana for its commercial

banking subsidiary, Kingdom Bank Limited. On the 12th of August 2003, Kingdom
Bank Africa Limited (KBAL) was licensed as an offshore investment bank in
Botswana by the IFSC. This means that clients benefit from tax-free multi-currency
confidential offshore banking with the confidence of their funds being within the
jurisdiction of Africa’s most economically stable country. According to a notice to
shareholders dated 13 September 2005, there was a realisation from the time of
registration that KBAL needed to be capitalised through the injection of a further
US$3 million. It was envisaged that the entity would be capitalised from Zimbabwe
but this proved impossible when the foreign currency situation in Zimbabwe became
critical and as a result the financial performance of KBAL was compromised. As at
beginning of September 2005, KBAL had incurred a loss of BWP2 million (about
USD325, 000.00) within six months. The Bank of Botswana determined that KBAL’s
capital adequacy position had fallen below minimum prudential guidelines and placed
it under its temporary management from 22 June 2005, according to the KFHL Notice
to Shareholders (2005). The temporary curatorship was lifted with effect from 1
September 2005 after preference shareholders in KBAL opted to exercise their rights
in converting into ordinary share capital and injecting fresh capital (BWP27 Million)
into the proposed new commercial bank. The effect of these transactions was to dilute
KFHL’s shareholding in KBAL from 100% to 35% with effect from 1 January 2005.
See Appendix 4 being the KBAL structure after the transactions. According to a
Sunday Mail Metro article reproduced in Kingdom Market News (2005), KFHL was
not in a position to participate in any future capital calls in the new local bank should
a license be granted and as such faced further dilution going forward. This is at
variance with the submission by Makler and Ness (2002, p.840) cited by Cardenas et
al (2003) that if a subsidiary of a foreign financial institution fails, it is assumed that
to maintain its reputation the parent bank will ensure the solvency of the subsidiary.

26
1.3.3 Barbican Holdings Limited (BHL)
Barbican Holdings Limited was listed on the Zimbabwe Stock Exchange and its
operations were largely in the financial services sector comprising of asset
management, commercial banking, and insurance and financial services subsidiaries
in three other countries. Barbican established a subsidiary called Barbican Holdings
(Proprietary) Limited South Africa that was 68% owned by its wholly owned
Zimbabwean subsidiary, Barbican Securities. Barbican Holdings (Proprietary)
Limited in turn had a 50% shareholding in Barbican Holdings (Proprietary) Limited
(Botswana) and a 49% stake in Barbican Holdings (UK) PLC. (See Appendix 5 for
the Group structure).

Barbican’s listing statement dated 25 September 2002 stated that the South African
operations consisted of the following companies:
• Barbican Asset Management (Proprietary) Limited
• Quantum Alliance Financial Services (Proprietary) Limited
• Barbican Securities (Proprietary) Limited with R10 million under management
• Barbican Private Equity (Proprietary) Limited with investments in two
companies namely Postpay (Proprietary) Limited (a cellular payment
management company) and ReNaissance (Proprietary) Limited (a furniture
manufacturer)
• Eric Capital (Proprietary) Limited being the holding company of Meeg Bank
Holdings (Proprietary) Limited, which investment was noted to constitute a
significant portion of the group’s net asset value

1.3.3.1 Analysis of Investments: Actual Status

According to the Reserve Bank of Zimbabwe (2006) allegations by a former senior
executive at Barbican Holdings (Proprietary) Limited in South Africa made in a
voluntary confidential report were confirmed by both the Reserve Bank and
Barbican’s internal and external auditors. Barbican’s listing statement dated 25
September 2002 listed Shamwari Corporate Finance as an institutional shareholder
with a 32% interest in Barbican Holdings (SA) but it later emerged that this company
had never had any real financial substance and in fact Barbican Securities bankrolled
the entire operation with funds purchased in the black market in Zimbabwe and

27
illegally transferred to South Africa. The shareholding split was apparently
engineered to feign compliance with the approved shareholding limited set by the
RBZ in granting Barbican (Zimbabwe) permission to invest in Barbican Holding
Limited (SA).

Contrary to the contents of the listing statement, investigations established that the
rest of the investments comprising the South African operations did not have any
value. The below lists the investments and their status:

INVESTMENTS STATUS

Barbican Securities (Pty) Ltd
Barbican Private Equity (Pty) Ltd
Quantum Alliance Financial Services Barbican claimed that this company had
(Pty) Ltd.
Eric Capital (Pty) Ltd
Never managed any funds let alone the
R10 million stated in the listing statement
The two investments namely Postpay
(Pty) Ltd and Renaissance (Pty) Ltd were
worthless by January 2003. In fact they
had been written off in Barbican’s annual
report for the year 2002.
just been formed but was in fact
purchased for ZAR500, 000.00 from a
Mr. Caffie Brand, apparently to secure its
asset management licence. The company
was dormant form the time it was
purchased.
Barbican claimed to have a 40% interest
in this company owned by a South
African national, Mr. Eric Molefe. The
investment was said to have arisen from
an advisory mandate in late 2001. The
investment apparently came from
approximately R1.4 million that was
actually paid out in cash to Mr. Molefe
apparently to secure Barbican an interest
in Meeg Bank. Mr. Molefe’s interest
ended in October 2002, which meant that
Barbican’s investment was worthless at
the time the listing statement was
published. Nothing was ever received by
the group for these funds.

28
1.3.3.2 Financial Performance
Investigations by the Reserve Bank of Zimbabwe established that as at the beginning
of 2004, there had been a substantial loss of value in these regional operations well in
excess of R12 million over a period of 36 months. It was noted that Barbican (SA)’s
audited accounts for the year ended 31 December 2002 reflected a loss of R2.7
million for the year and there were other undisclosed losses of approximately 7.3
million for the period ended 31 December 2001. Losses for the year ended 2003 were
expected to amount to approximately R1.8 million. The group had assets of
approximately R1.2 million in its books as at 31 December 2003. This would present
a net liability position of R10.6 million for the 36 months ended 31 December 2003.

Investigations by the Reserve Bank of Zimbabwe revealed that no adjustments were

ever made in the group’s consolidated accounts in Zimbabwe for the material losses
in excess of R12 million suffered in the group’s regional operations yet all the funds
lost came from Barbican Asset Management in Zimbabwe using foreign currency
sourced illegally from the black market. It was noted that all the group’s operations
in the region were technically insolvent and only survived on the cash transfers
made from Barbican Asset Management in Zimbabwe. At the time of the RBZ
investigations it was speculated that it was only a matter of time before these
operations faltered because of the precarious circumstances of Barbican Bank in
Zimbabwe. According to the Reserve Bank of Zimbabwe (2006) Barbican’s financial
statements for December 2003 were qualified by external auditors who were
convinced that the bank was no longer a going concern.

1.3.3.3 Curatorship and Cancellation of Banking Licence

In January 2004, following persistent liquidity problems, the Reserve Bank of
Zimbabwe commissioned an investigation of Barbican Bank by an independent firm.
The bank was found to be technically insolvent with total assets of $42.46 billion
against liabilities of $44.77 billion, giving a liability net position of $2.31 billion, then
a huge amount. All capital ratios had fallen below prudential minimum levels with the
capital adequacy ratio of a negative 8%, being below the minimum regulatory
requirement of 10%. Following the investigation, the Reserve Bank issued a

29
Corrective Order on 13 January 2004, which among other things ordered Barbican
to curtail local, regional and international expansion programmes.

The external audit report by Kudenga and Company Chartered Accountants

confirmed the RBZ’s findings regarding externalisation of funds, poor corporate
governance practices; over reliance on non-core business and the fact that Barbican
was insolvent. The audit findings noted that:
• The investments in South Africa had been making losses from inception and
where wholly financed by the Zimbabwean Barbican Asset Management. The
Board of Barbican Holdings Limited in South Africa resolved to convert a
loan of R9,125,461.00 advanced by the asset management company in
Zimbabwe to ordinary share capital. This conversion of the loan would have
extinguished that obligation by the South African entity to repay the loan yet
the advance was funded out of depositors’ funds.
• The South African subsidiaries were insolvent to the tune of ZAR5.4 million
and that the operations were unviable, unsustainable and illegal as they were
perpetrated in violation of Exchange Control regulations.

While efforts were being made to forestall the imminent collapse of the bank, Dr.
Ncube, the Group CEO, left for South Africa where he became a professor of Finance
at Wits Business School. Barbican was placed under the management of a curator on
the 15th of March 2004, the capital deficit having grown to $46.6 billion. Proposals to
recapitalise the bank by several investors failed due to the huge capital deficit,
resulting in the cancellation of the banking licence on 30 June 2006. An appeal by the
founder and principal shareholder, Dr. Mthuli Ncube on 26 June 2006 was thrown out
by the Minister of Finance and the cancellation of the license was upheld 10 July
2006.

30
1.3.4 Century Bank Limited (CBL)

Century started operating as a commercial bank in 2001. Almost as soon as it was

listed on the Zimbabwe Stock Exchange, Century Bank Limited registered Century
International in Botswana but chose to locate its offices in Johannesburg South
Africa. The bank later went into an alliance with INDEbank of Malawi, which had
transformed from a development bank into a commercial bank in 2002. For Century
to have chosen as its partner the newest and weakest commercial bank does not
appear to have been the best way to penetrate an oversubscribed and small market.
Century also opened an office in London from which it serviced the money transfer
needs of Zimbabweans in the Diaspora through its money transfer business called
Hand2hand.

According to the Financial Gazette (February 2004), the directors of Century

announced the discontinuation of its regional offensive and, “During the year, the
group reviewed its regional operations as part of a strategic realignment of its
business. In view of the risks affecting the money transfer business worldwide, as
well as the negative outcome of INDEbank transaction, the group has discontinued its
regional operations.” This decision was made at the time of the liquidity crunch in the
financial sector, which saw Century Discount House being closed. The bank had also
received liquidity support from the Reserve Bank of Zimbabwe, which laid down
restructuring conditions in return for such aid, including the discontinuing of
regional operations.

31
1.3.5 Trust Holdings Limited (THL)
Quoted in the Financial Gazette (March 2007), the then spokesman of THL said that
the long-term strategy of the group was to mitigate single market country risk by
diversifying its revenues and income base.

In 2002, when it had grown to become the largest banking group by market
capitalisation, THL bought 100% into Nicorp Securities, a company with interests in
asset management, from National Insurance Company Limited (NICO), the largest
insurance company in Malawi. THL also acquired a 60% stake in Trust Finance
Limited of Malawi (TFL-Malawi) and a 49% stake in Trust Securities Limited (TSL –
Malawi). The Herald (July 2007) reported that THL was seeking shareholders’
approval to dispose of shares in these subsidiaries at its annual general meeting set for
August 2007.

In 2003, THL began talks with Nexim Bank of Nigeria to explore the possibility of
establishing a partnership that would harness and sustain agro-export business in
Nigeria leveraging on the experience THL gained in promoting agro-exports. The
group was also exploring new markets in other African countries such as Botswana,
Uganda, Tanzania and Zambia. Arrangements had also been made for Trust Bank to
buy into CAL Merchant Bank in Ghana but this was not consummated because by the
time the bank faced liquidity challenges, payment had not been made and in any case
all of the bank’s regional initiatives had to be abandoned as part of the conditions of
the Reserve Bank’s rescue package. The Reserve Bank of Zimbabwe (2006)
concluded that, “The Bank was facing serious liquidity and solvency challenges
emanating from rapid expansion without a corresponding increase in capital, as well
as high levels of non-performing loans. Various merger initiatives, with a number of
local and regional investors failed to sail through, largely as a result of the huge
capital deficit.” The bank was placed under the management of a curator on 23
September 2004 and its assets subsequently incorporated into the Zimbabwe Allied
Banking Group (ZABG).

32
1.3.6 Intermarket Holdings Limited (IHL)
Intermarket opened a discount house in Zambia in 1994, which although mainly
involved in money market securities, also had a stokbroking arm. The company
acquired a broader commercial banking licence, which it did not immediately put to
use. Intermarket operations in Zambia were subsequently taken over by ZB Financial
Holdings Limited, following acquisition of Intermarket Holdings Limited by ZBFHL
in Zimbabwe.

1.3.7 ZB Financial Holdings Limited (ZB FHL)

According to Kayawe & Amusa (2003) Zimbank Botswana Limited (ZBL) was the
first foreign bank to apply for a banking license in Botswana and was incorporated in
1990, beginning operations with a managing director who had previously worked for
Standard Chartered Bank Botswana. However owing to loss making operations and
accumulation of substantial bad debts, ZBL was eventually taken over by First
National Bank Botswana (FNBB) in September 1994 for a nominal sum after,
according to Leith (1998), the Bank of Botswana stepped in, forcing the shareholders
to arrange for an orderly sale of a going concern to another institution. Harvey
(1996a) says that the purchase price was a mere P2 (about USD0.32), because P13
million (about USD2, 100,000.00 at current exchange rates) of capital invested (in
four successive tranches) was approximately offset by P13 million of losses.
Unofficially, Zimbank paid the purchaser to take Zimbank Botswana Limited over.
This is consistent with the submission by Cardenas et al (2003) that one strategy to
reduce reputation costs consist in selling subsidiaries at a low price or even paying
investors to acquire them instead of letting them fail.

According to Leith (1998), one of the reasons for the failure of Zimbank in Botswana
was that it was continually undercapitalised. Leith (1998) also confirms that
Zimbank Botswana breached its capital adequacy requirements. Another reason
was that its comparative advantage was to finance trade with Zimbabwe, but
within a year trade with Zimbabwe collapsed because of the large devaluation of
the Zimbabwe dollar. A third reason was that it had a high cost structure, which
included several highly paid expatriates. Another reason, as posited by Harvey
(1996a), is that “It was argued that Botswana’s market was not large enough for
additional commercial banks to operate successfully.” Harvey (1996a) further says

33
that, “Between 1990 and 1992, four new foreign commercial banks were licensed to
add to the previous three; this may have been too many for the size of the market, as
demonstrated by the subsequent mergers which (left Botswana with only four.”

After its experience in Botswana, Zimbank did not embark on other cross border
banking activities until; now trading under the new name ZB Financial Holdings
Limited (ZB FHL), it acquired an 84% stake in Intermarket Holdings Limited. By
default rather than by design the bank then resumed Intermarket’s international
activities. The group acquired IHL’s 98% interest in the foreign subsidiary in Zambia
called Intermarket Banking Corporation Limited Zambia (IBCL), which operates
three branches. ZB FHL wholly owns another subsidiary in Zambia, namely
Intermarket Securities Limited. According to The Herald (July 2007) The Bank of
Zambia reviewed minimum capital requirements for commercial banks from 2 billion
kwacha (approximately USD515, 000.00) to 12 billion kwacha (approximately USD3,
100,000.00) with effect from June 2008 and ZB FHL had started taking measures to
recapitalise the subsidiary.

Presenting its Key Operations Review in the Unaudited Results for the half-year
ended 30 June 2007; ZB Financial Holdings Limited had this to say about Intermarket
Banking Corporation Limited (Zambia): “Interest margins in Zambia have remained
very thin whilst costs have been soaring up. Consequently, Intermarket Banking
Corporation Limited (Zambia) was only able to post a modest profit level of ZMK4.2
million (USD1100.00) over the six months to June 2007. However opportunities have
been explored for the business to leverage on the Group muscle in order to accelerate
the pace of revenue growth and improve on market share. A recapitalisation program
in order to meet the new capital requirements is already in place.”

34
1.3.8 Metropolitan Bank Limited (MBL)
Unlike most other banks which settled for regional investments, Metropolitan Bank
chose to venture not into the regional arena but into the international arena when in
2002 it opened two Expo Centres in Singapore and Malaysia in 2002, in sync with
Government’s look east policy which encouraged trade and investment relations with
Asian countries especially Malaysia and China. In July 2003, a banking licence was
obtained in Malaysia. The Expo Centre in Singapore was closed in December 2003
due to mounting operational costs. Metropolitan has also expressed interest in the
Angolan market but nothing has materialised to date.

A report in The Herald (April 2007) indicated that Enock Kamushinda, the Malaysia-
based founder of Metropolitan Bank in which he has a 25% stake, had invested an
undisclosed amount of money to open up an asset management firm in Namibia, to
trade as Namibia Asset Management Company. The report speculated that
Metropolitan Bank would later assume control of the new company once it complies
with the Reserve Bank of Zimbabwe regulations under which a commercial bank is
barred from investing in other companies unless it is registered as a holding company.

35
1.3.9 ReNaissance Financial Holdings Limited (RFHL)
ReNaissance Financial Holdings Limited, where the author is employed as a Senior
Manager in charge of Trade Finance, commenced operations in January 2002, having
evolved from ReNaissance Advisory Services, itself founded in 1999 by three of the
current members of executive management. The bank is the main operating unit of
ReNaissance Financial Holdings Limited (“RFHL”), which came into effect in 2004.
The other operating subsidiary is ReNaissance Securities, a stock broking firm
formerly known as Barnfords Securities, which was acquired in April 2004. RFHL
established a presence in Uganda in the form of a start up operation called
ReNaissance Capital Limited (RCL) focusing on corporate advisory services, asset
management and stock broking. (See Appendix 6 for RFHL Group Structure) RCL
commenced operations in June 2005 with an initial capital of USD200, 000.00 and
since then has focused on brand establishment and aggressive marketing efforts in
order to establish the ReNaissance footprint in East Africa. According to the RFHL
Annual report (2006), the aggressive marketing efforts have started bearing fruit and
RCL won a bid to co-sponsor the Initial Public Offering (IPO) of Stanbic Bank
Uganda, the biggest ever IPO on the Uganda Securities Exchange (USE) in November
2006. The IPO was oversubscribed by 200%, raising UGX 210 billion (US$120
million) against a target of UGX70 billion (US$40 million). RCL managed to raise
UGX26 billion (US$15.07 million) and handled more than 5,000 subscribers’
applications.

RCL incurred a loss after tax of Z$88.6 million to 31 December 2006, compared to a
loss of $7 million at 31 December 2005. The stock broking division contributed 54%
of total revenue, although it only operated for 6 months. RCL’s stock broking
capacity saw it handing 60% of all securities traded from June 2006 to December
2006.

In its Unaudited Financial Statements for the half year ended 30 June 2007, RFHL
noted in the Financial Performance Review that, “ReNaissance Capital Limited, the
Uganda unit continued in its bid to consolidate its efforts in East Africa. The unit
incurred a loss of $8.3 billion to 30 June 2007, compared to a loss of $16.4 billion in
the same period in 2006. Although the company has not yet moved into a profit
position, in year on year terms revenue increased by 1,755% between June 2006 and

36
June 2007. The Company, through the stock broking arm, enjoyed a healthy brand
presence and recognition in the market, being fruits of the part it played in the Stanbic
Bank Uganda IPO in 2006. The stock broking division accounted for 89% of total
revenue, mainly due to increased activity on the local bourse, an aggressive marketing
strategy and enhanced service delivery to clients. The unit continues to make efforts
to leverage client and partner relationships and translate them into income.

At the time of this study, RFHL was exploring opportunities in Zambia in its quest to
achieve an African footprint.

37
1.4 RESEARCH PROBLEM
While regional expansion is a welcome development in as far as it broadens the
horizons and sphere of influence of Zimbabwean banks, allowing them to compete at
a global level, it appears that it has had its own fare share of problems. Most regional
expansion programmes have had wholly unsatisfactory results and in terms of
profitability and also in terms of the payback period. Apart from concerns about
exporting foreign currency at a time when there is a crippling shortage of the
commodity in the country, there are also concerns about the image issues that arise
from these failures. The time and resources expended on these sometimes ill-advised
forays constitute waste and could be used in developing and strengthening local
financial institution and hence the soundness of the overall financial system in
Zimbabwe.

1.5 AIM OF THE STUDY

The aim of the study is therefore to establish the critical success factors and
drawbacks for cross–border investments based on the experiences of Zimbabwean
banks that embarked on such investments in terms of whether they effectively
deployed such factors or not, leading their ultimate success or failure.

1.6 RESEARCH OBJECTIVES

• To establish the impact of entry mode on the success (or failure) of cross-
border investment.
• To establish the impact of capitalisation on the success (or failure) of cross-
border investments.
• To establish the impact of timing issues on the success (or failure) of cross-
border investments.
• To establish the impact of cultural issues/business practices of the host
country on the success (or failure) of cross-border investments.
• To establish the impact of regulatory controls on the success (or failure) of
cross-border investments.

38
1.7 RESEARCH QUESTIONS
1.7.1 What was the impact of the choice of entry mode on the success of cross-
border investments by Zimbabwean banks?
1.7.2 What is the impact of the level of capitalisation on the success of cross-
border investments?
1.7.3 Is timing an issue on the success of cross-border investments?
1.7.4 Do cultural issues/business practices of the host country impact on the
success of cross-border investments?
1.7.5 What is the impact of regulatory controls on the success of cross-border
investments?

1.8 HYPOTHESIS
A successful cross border investment is dependent on enabling exchange controls; an
appropriate entry mode; proper timing, adequate capitalisation and conducive
cultural/business practices in the host country.

1.9 SIGNIFICANCE OF STUDY

The apparent under-performance of cross border investments by Zimbabwean banks
is a cause for concern and there is a need to tap into their experiences in order to
inform and shape future engagements in regional markets. At an industry level, this
study is significant in that it will establish the critical success factors for cross border
investments and help any bank wanting to invest in a foreign country to know the
rules of engagement before they take the plunge as some banks seem to have done in
the past. ReNaissance Financial Holdings Limited, where the author is employed,
seeks to become the preferred provider of banking solutions not only in Zimbabwe
but also in Sub-Saharan Africa and has recently established operations in Uganda in
pursuit of an African footprint. The findings of this study will therefore inform
RFHL’s expansion strategies and ensure that it does not repeat the mistakes that have
already been made by its peers. Additionally, there is not much documented
knowledge on the subject of cross-border investments by Zimbabwean financial
institutions and the findings of this study will contribute towards growing the body of
work on the subject. Blomstermo & Sharma (2006) talk about contributing to theory
development in the field of internationalisation processes of service firms.

39
1.9. CHAPTER OUTLINE
1.9.1 Chapter 2: Literature Review
The chapter reviews literature on the different concepts relating to cross-border
investments such as the driving forces of cross-border investments, their timing, and
the choice of entry mode. The impact of culture, international experience and the
business environment in the host country on cross-border investments is also
discussed. The chapter also outlines the benefits of cross-border investments, leading
to a conceptual framework suggesting how these concepts link to the performance of
cross-border investments.

1.9.2 Chapter 3: Research Methodology

The chapter deals with how the research was operationalised. The research
philosophy, research approach as well as the research strategy is discussed, followed
by an outline of the limitations that were encountered during the research process. The
Chapter closes with a discussion of the reliability and validity of the research results.

1.9.3 Chapter 4: Data Analysis

The findings of the research are presented in the form of an analysis of the
questionnaires for Banks and for the Reserve Bank of Zimbabwe. The results are
presented graphically through different types of charts. The chapter closes with a
summary of the major findings, the common findings and the unique findings of the
research

1.9.4 Chapter 5: Interpretation

The Chapter evaluates the major findings of the research using the conceptual
framework and hypothesis as suggested in Chapter 2.

1.9.5 Chapter 6: Conclusion

This chapter basically wraps up the report. It points to the gaps identified by the
current research and suggests further areas of research. The author also deals with the
issues of validation or otherwise of the hypothesis.

40
1.9.6 Chapter 7: Recommendations
The author makes recommendations based on the gaps identified by the research. The
limitations and constraints associated with the implementation of the
recommendations are also discussed.

1.9.7 Chapter 8: Implementation Issues

The chapter briefly discusses implementation issues arising from the
recommendations in the previous chapter.

41
CHAPTER 2.0: LITERATURE REVIEW
2.1.0 Introduction
Denison and McDonald (1995, p.55) posit that a literature review is undertaken so
that we could build on the knowledge base that already exists. The chapter opens by
defining a cross border investment, which in this report is interchangeably used with
the terms Financial Sector Foreign Direct Investment (FSFDI) and Foreign Direct
Investment (FDI). This is followed by an outline of the driving forces of cross border
banking activity, leading into a discussion of the importance of timing in such
activity. The report further discusses the concept of entry mode, a key strategic
decision for international business, the various types of entry modes with which a
company may enter a market, and the factors influencing the choice of a particular
mode. The concept of culture in terms of cultural distance, organisational culture and
national culture is introduced and its dominant role in determining managing
practices/strategies in the context of cross-border investments is discussed.
International experience is recognised as an important advantage in cross border
investments, with implications on the timing and nature of entry. The impact of the
regulatory environment on the success of cross border investments is also discussed,
and the chapter closes with an outline of the benefits of FSFDI.

2.2.0 Definition of Cross Border Investments/ FSFDI/FDI

According to the Bank for International Settlement (BIS) (2004), Financial Sector
Foreign Direct Investment (FSFDI) is international investment that reflects the
objective of a resident entity in one economy obtaining a lasting interest in a firm
resident in another economy. Hence, it refers to control rather than a specific form of
financing. Lai (2001) supports this view and says that international investment, or
foreign direct investment (FDI), is an investment made to acquire management
interest in an enterprise outside the economy of the investor. Blomstermo et al (2006)
explain a firm’s foreign market entry as a process of increasing accumulation of
experiential knowledge about business partners, and committing human, technical,
and administrative resources.

42
According to Jenkins and Thomas (2004), around 80% of FDI to developing countries
is received by the East Asian and Latin American regions while Sub-Saharan Africa’s
share of total FDI to the developing countries has generally remained between just 3
to 5 percent of the total, indicating the marginalisation of the continent in terms of
attracting this key source of long-term private capital.

2.3.0 The Driving Forces of Cross Border Investments

Makino & Delios (2003) submit that foreign market entry is a strategic action that has
important consequences for the international competitiveness and profitability of a
firm. A decision to invest in a foreign country is made when the combined advantage
of both ownership and location (i.e. be there and own it) is higher than those of other
business arrangements such as agency relationship or licensing, according to Lai
(2001). Goldberg (2007) makes the interesting observation that in the 1990s, foreign
direct investment (FDI) became the largest single source of external finance for many
developing countries. Some of the driving forces for cross border investments are
outlined below:

2.3.1 Defensive Expansion Theory

According to BIS (2004) historically, the main motivation for financial institutions to
extend their services abroad was to assist their home country customers in
international transactions. Citing Grubel (1977) Naaborg (2007) says that according
to the defensive expansion theory, banks follow foreign direct investments by the non-
financial sector to defend relationships with their clients. Jenkins and Thomas (2002)
support this and refer to the desire to defend or expand markets or service existing
clients in a particular foreign region.

2.3.2 Liberalisation and cross border consolidation

BIS (2004) say that the origins of the surge in FSFDI lie in the financial liberalisation
and market-based reforms that occurred in many Emerging Market Economies
(EMEs) in the 1980s and 1990s. These reforms permitted more competition and
resulted in fewer controls on credit, interest rates and international transactions.
Moskow (2006) agrees that due to financial liberation, or deregulation, suddenly
banks were not constrained and had the ability to expand beyond their borders
Cardenas et al (2003) says that during the last decade several emerging market

43
economies (EMEs) have lifted restrictions on foreign direct investment (FDI) in their
financial systems and as a result, foreign ownership of domestic institutions has been
growing rapidly. Berger et al (2000) suggests that one of the factors motivating cross-
border consolidation of financial institutions may be the increase in the general level
of economic integration across borders. In Europe for instance, there has been
considerable cross-border consolidation of all types of financial institutions following
substantial deregulation of cross border economic activity in both financial and
nonfinancial markets, according to Berger et al (2000).

2.3.3 Competitive forces/ Industry Rivalry

Naaborg (2007) posits that home market bank competition and higher host market
bank profitability are important determinants to start foreign banking. Makino &
Delios (2003) support this view and posit that differences in competitive conditions in
the home country of a foreign investing firm exert an important influence on foreign
market entry behaviour. They suggest that foreign market entry can be sparked by the
extent of industry rivalry in the home country. Zhao and Decker (2004) therefore
argue that it might be a good strategy for SMEs as well as large enterprises to realize
economics of scale in view of thus gaining competitive advantages by
internationalising business vertically or horizontally.

Citing Flowers (1977), Makino & Delios (2003) submit that when a firm follows a
rival’s entry in a proximate time period, this is termed bunched entry. Makino &
Delios (2003) also says that leading firms appear to engage in an intense market entry
rivalry, that shows up in rapid responses to competitors’ actions, as entrants seek to
gain a leading position in the host market, relative to home industry rivals and in such
situations, the timing, speed and aggressiveness of strategic actions are related to the
market share success of strategy.

44
2.4.0 The Timing of Cross Border Investments
Makino & Delios (2003) attempt to describe and model foreign entry in a way that
captures the dynamic, underlying elements of timing issues and advance the idea that
the speed of reaction is an important component of a firm’s strategy. Citing D’Aveni
(1994) Makino & Delios (2003) further reinforce the idea that the timing of an action
is important and that timing has been argued to be critical in hyper competitive
markets. It is also argued that a competitive dynamic underlies foreign markets entry
timing. Casson & Buckley (1981) also submit that analyses that are concerned with
the dynamics of the foreign expansion of the firm should be able to specify those
factors that govern the timing of the initial FD1.

In arguing the case for the importance of timing in cross border investments, Blandon
(1999) expresses concern that papers that investigate foreign direct investment in the
banking sector usually focus their attention on explaining its rationality, without
considering questions involving its timing. He further argues that the timing of a
foreign direct investment will be important when there exists differential benefits
depending on the time of entry, as pioneers tend to maintain market share advantages
over later entrants.

Makino & Delios (2003) agree that entry order, being a first, early or late mover into a
market, has important consequences for a firm’s performance in its domestic and
international markets. Makino & Delios (2003) further argues that moving early into a
foreign market can be a competitive action that potentially leads to first mover
advantages in relation to home country rivals, but being a first mover comes at the
cost of encountering greater uncertainty in the market than later entrants. Yet it is
acknowledged that uncertainty levels can be a formidable deterrent to foreign market
entry because of the significant demands to learn and develop capabilities in a setting
in which language, culture, buyers, suppliers and political and legal systems can be
different.

Blandon (1999) argues that firms that enjoy advantages that are unique could more
likely adopt the strategy of wait and see, because their advantages will not be eroded
with time, while firms whose advantages are easy to duplicate by their competitors
will find it difficult to delay the investment. Foreign direct investment by financial

45
institutions would be characterized by partial irreversibility and high costs associated
with the delay of the investment, so in such a situation, banks should not delay their
entry in foreign locations.

Makino & Delios (2003) suggest that the timing of the investment is jointly
influenced by a rival’s actions, by a firm’s own competitive advantages and by
industry conditions, in addition to basic information and economic concerns.

2.5.0 Choice of Entry Mode

Cited in Friberg and Loven (2007), Root (1987) defines foreign entry mode as an
institutional arrangement that makes possible the entry of a company’s products,
technology, human skills, management, or other resources into a foreign country.
Meyer and Estrin (1999) posit that the choice of appropriate entry into new markets,
especially emerging markets, is a key strategic decision for international business and
the strategic intent of an investment often predetermines its entry mode. Zhao and
Decker (2004) also claim that the choice of foreign market entry mode is one of the
most critical decisions for Multi National Enterprises (MNEs) because it affects future
decisions and performance in foreign markets, and it entails a concomitant level of
resource commitment which is difficult to translate from one to another. Friberg and
Loven (2007) note that strategy is difficult to reverse once set and this should also be
true for the strategic choice of entry mode. Meyer and Estrin (1999) further argue
that recent contributions in the field of strategic management have stressed the
importance of a simultaneous analysis of entry mode and performance. Friberg and
Loven (2007) contend that a number of studies suggest that the choice of foreign
market entry mode has a significant impact on survival and performance of foreign
subsidiaries. Evans (2002) cites psychic distance or cultural distance as a key
determinant of entry strategy choice together with other internal determinants such as
centralization of decision-making, organizational culture, firm size and
international experience.

Blomstermo et al (2006) submit that firms may enter foreign markets using a variety
of entry modes, for example exports, licensing, joint ventures, or establishing a
subsidiary abroad. BIS (2004) define a subsidiary as an independent legal entity, with
powers set by its own (host country) charter while a branch is licensed by the host

46
country, with powers defined in the parent’s charter, and subject to limitations
imposed by the host country. Cardenas et al (2003) define branches as operating
entities which do not have separate legal status from that of their parent bank while
subsidiaries are entities incorporated under host country’s laws and thus technically
and legally considered as stand alone entities. Berger et al (2000) concur that a
financial institution can use a variety of channels to deliver financial services to a
business customer in a foreign country. The institution can provide the services
directly to the foreign business from its home-country headquarters. The institution
can participate in a syndicate that finances a large loan or securities issue that is
originated by another financial institution located in the foreign country.

Finally, the institution can obtain a physical presence in the foreign country (by
acquiring a financial institution there or by opening a branch or subsidiary and
providing the service in the foreign country. Goldberg (2007) submits that banks
produce services, not goods, so export transactions are sometimes not practical, and
especially when the information intensity of the transactions requires proximity to the
client. She therefore argues that financial sector FDI thus entails either a de novo
(new) operation of introducing new a licensed bank in the host country or the
acquisition of an existing bank. In support of this, Jenkins and Thomas (2002) posit
that greenfield investments are more likely to in the service sector.

Berger et al (2000) further say that establishing a physical presence in a foreign

country entails a number of costs, such as organizational diseconomies to operating or
monitoring an institution from a distance. However, establishing a physical presence
in the foreign country offers some potentially offsetting advantages, including (a)
more effective servicing and monitoring of customers and (b) an opportunity to
compete for retail and wholesale customers in the foreign country. Lai (2001) says
that for small and medium sponsors, many investments could be conducted through
non-equity forms of FDI such as licensing, franchising, leasing, sub-contracting,
production sharing and management contracts.

Buckley and Casson (1981) submit that if the potential size of the market is small then
the firm may export indefinitely and if the potential market is only of moderate size,
the firm may switch from exporting to licensing to FDI. It is also argued that

47
alternatively if the market is large to begin with, the firm may omit the exporting
stage and begin with licensing; if the market is very large it may even commence
servicing with FDI.

Meyer and Estrin (1999) submit that an organisation can enter a new market through
as greenfield project, which gives the investor the opportunity to create an entirely
new organization to its own specification although this usually implies a gradual
market entry, or through an acquisition which facilitates speedy entry to the local
market and access to resources, but the acquired firm will not necessarily match the
organization of the investor. A greenfield investment is referred to as one that entails
building a subsidiary from bottom up to enable foreign sale and/or production.
Greenfield investments are noted to be a natural choice for firms with a strong
competitive advantage. It is also argued that to engage in a greenfield venture,
complementary local resources are needed and these include for instance real estate,
business licences, local blue-collar workers and supplies of intermediate goods and
raw materials. Meyer and Estrin (1999) argue that in emerging markets, their
availability cannot be taken for granted.

Kogut and Singh (1998), cited in Meyer and Estrin (1999) define an acquisition as a
purchase of stock in an already existing company in an amount sufficient to confer
control. It is further argued that an acquisition reduces costs as the local firm not
only controls key assets but also is embedded in local networks and labour markets.
According to Jenkins and Thomas (2002), the value of local knowledge of domestic
markets and the perceived importance of a local identity creates a competitive edge.
Lai (2001) argues that compared with greenfield projects, participation in
privatisation provides an investor with proprietary assets, trained workers and
marketing channels, allowing the acquirer to quickly establish a position in the
market. A third hybrid entry mode, brownfield, is advanced by Meyer and Estrin
(1999) who suggest the following definition: a brownfield investment is a foreign
entry that starts with an acquisition but builds a local operation that uses more
resources, in terms of their market value, from the parent firm than from the acquired
firm. According to Jenkins and Thomas (2002), ownership of enterprises by foreign
firms can combine elements of both acquisition and greenfield, as when significant
new investment takes place at the same time as acquisition. Figure 3 below illustrates

48
a resource-based view of the origins of resources employed in alternative entry
modes:

Resources Resources of the local firm Resources of the investor

Employed
100%

50%

0%

Conventional Brownfield Greenfield

Acquisition

Figure 3: Origin of Resources employed in Alternative Entry Modes

Adapted from MEYER, K., and ESTRIN, S., (1999). Entry Mode Choice in
Emerging Markets: Greenfield, Acquisition and Brownfield. Centre for East
European Studies, Copenhagen Business School

Firms with ambitious entrepreneurs may pursue rapid expansion plans relative to their
own size and their limited managerial resource and favour acquisitions. Meyer and
Estrin (1999) therefore argue that resources that a firm possesses determine whether it
is pursuing an internal growth strategy via greenfield operations, or an external
growth strategy through acquisitions. They further argue that firms with transferable
resources (e.g. public good character competences, excess management, access to
finance) are more likely to choose greenfield or brownfield entry. Friberg and Loven
(2007) say it has been shown that greenfield entries outperform acquisitions in terms
of survival. Jenkins and Thomas (2002) note that a significant proportion of
worldwide FDI in the past decade, to developing as well as developing countries, has
been in the form of mergers and acquisitions, as opposed to greenfield investment.
Jenkins and Thomas (2002) further argue however that greenfield investments have
been the more common method of entry into Southern Africa.

49
2.5.1 High vs. Low Control Entry Mode.
Blomstermo et al (2006) posit that foreign presence can take the form of a high
control mode (e.g. wholly owned subsidiary, majority owned subsidiary or a low
control mode (e.g. licensing, different types of contractual relationships etc.) Zhao
and Decker (2004) argue that entry modes are assessed by the level of control and
wholly owned ventures, for example, are characterised by the highest level of control.

According to Evans (2002), an entry strategy that affords a high degree of control is
normally associated with high cost, such as acquisition, dominant shareholding or
wholly owned greenfield investments while a low cost strategy is said to imply a
reduction in control, such as minority equity interests, franchise arrangements and in-
store concessions. Blomstermo et al (2006) agree that high control entry modes
demand more resource commitment abroad, and the foreign-going firm is exposed to
a higher degree of uncertainty while low control modes require a more limited
resource commitment, thus reducing the uncertainty exposure of the foreign-going
firm. Friberg and Loven (2007) also contend that the most appropriate (i.e. most
efficient) entry mode is a function of the trade off between control and resource
commitment. They further argue that high control modes such as sole ventures imply
higher resource commitments and hence a higher risk but also higher returns.
Greenfield should be preferred if the host country-based operation constitutes a
significant proportion of the entering company’s assets and turnover, i.e. the resource
commitment is high. This is because a firm would want tighter control over an
affiliate whose performance has a significant impact on its overall performance.

Blomstermo et al (2006) also affirm that the choice of foreign market entry mode is
critical and related to control, which ensures achievement of the ultimate purpose of
the organization. Another submission made by Blomstermo et al (2006) is that control
over foreign market entry mode allows service firms to supply timely and good
quality services to international clients, which protects reputation. It is therefore
argued that given the necessity for customizing soft services to client needs, which
requires more experiential knowledge of foreign markets and foreign clients, soft-
services firms such as banks are more likely to opt for high control foreign market
entry modes.

50
2.5.2 Centralisation of decision-making
As centralization is primarily a control issue it can be argued that more centralized
structures would prefer entry strategies that afford a high level of control for head
quarters based in the home market, posits Evans (2002). It is therefore evident that
the decision making structure of the firm is a key determinant of entry strategy
choice. Root (1994), cited in Zhao and Decker (2004), suggests the decision making
process (DMP) model on market entry mode which argues that entry mode choice
should be treated as a multistage decision making process and in the course of
decision making diverse factors, such as the objectives of the intended market entry,
the existing environment, as well as the associated risks and costs, have to be taken
into account. It is further argued that this means that at least near-optimum solutions
are only attainable if the relevant factors as well as their interactions and trade-offs are
considered from a dynamic perspective.

2.6.0 Culture
Kessapidou and Varsakelis (2002) say that in international business literature, culture
is defined as the acquired knowledge people use to interpret experiences and to guide
their behaviour. They acknowledge the dominant role of national culture in
determining managing practices/strategies in the context of cross-border investments.

2.6.1 Organisational Culture

Evans (2002) posits that organizational culture is a critical factor in determining a
firm’s corporate strategy and direction hence it is an important variable when
examining a firm’s entry strategy. According to BIS (2004) the firm’s internal culture
has the effect of governing the delegation of decision-making of the organisation.

Deshpande, et al (1993) cited in Evans (2002) classifies organizations as one of four

cultures. First, a hierarchical culture empasises established procedures, rules and
uniformity. Second, the clan culture stresses loyalty, tradition and commitment to the
firm. Third, the market culture focuses on competitive actions and achievement.
Fourth, an organization with an adhocracy culture is entrepreneurial, creative and
flexible. In his study of organizational culture as an antecedent to the export intentions
of firms Dosoglu-Guner (1999) cited in Evans (2002), found that a clan culture
decreases and an adhocracy culture increases a firm’s probability of exporting to a

51
foreign market. A more entrepreneurial culture, such as adhocracy, is likely to take
more substantial business risks and enter markets through high cost/high control
strategies, whereas a hierarchical or clan culture may be more likely to adopt a low
cost/low control strategy, argues Evans (2002).

Kessapidou and Varsakelis (2002) posit that differences in national culture influence
not only the entry mode but also the perceived difficulty surrounding the integration
of foreign personnel in the operation. When entering a foreign market, both the
national culture of the country of origin as well as the firm’s corporate culture will
prove critical for the success of the project.

2.6.2 Cultural Distance

Blandon (1999) argues that cultural differences among consumers across the world
are expected to constitute a barrier of entry in multinational banking. Although
banking services are typically considered as highly standardised products, the bank’s
ability to connect with its potential clients’ needs will be lower, the higher the existing
cultural differences between them. Firms therefore tend to initiate foreign
involvement in those locations that are relatively similar to their country of origin.
Cited by Blomstermo et al (2006) Kogut and Singh (1998) found that firms prefer to
enter foreign markets that are culturally similar to the domestic market. It can
therefore be expected that a higher cultural distance between any two countries will
act as a deterrent for cross border banking movements. Cited in Friberg and Loven
(2007), Johanson and Vahlne (1977) propose that differences in language, business
practices, culture and other aspects create lack of knowledge that impedes effective
decision-making in international operations. On the other hand Friberg and Loven
(2007) submit that if the cultural distance between the entering company’s home
country and the host country of operations is small, then low cultural distance would
imply lower learning costs.

Kessapidou and Varsakelis (2002) define national culture distance as the degree to
which cultural norms in one country are different from those in another country. They
further argue that culture differences can pose particular problems for multinationals
when the differences between the national culture of the host country and the national
culture of the host country and corporate culture of the multinational creates problems

52
with the acceptance, implementation and effectiveness of human resources
management practices in host countries. This risk of misconception of management
practices is much lower when the firm enters through greenfield than through
acquisition; argue Friberg and Loven (2007. Meyer and Estrin (1999) submit that
international acquisitions are inhibited not only by the interaction between two
organisational cultures but by different national cultures and that acquired firms face a
double-layered acculturation because of the corporate and national dimension of the
organisational differences. The authors therefore conclude that the higher the cultural
distance between the two firms, the more the communication problems may emerge,
and the less of the transferred capabilities can be adopted by the acquired
organisation. Zhao and Decker (2004) agree that cultural distance is a factor to be
considered when entry mode decision is being made but they however argue that it is
not a determinative one, and it should not be an obstacle of entering into a potential
market with the right mode. Friberg and Loven (2004) acknowledge that a
relationship has been found between cultural distance and performance in the short
run but that this difference is not sustained in the long run; hence cultural distance
appears to become less important after a number of years in the host country.

2.7.0 International Experience

According to Evans (2002), international experience, measured in terms of the
number of years operating in foreign markets, the number of foreign markets in which
the firm currently operates and the percentage of total group retail sales derived from
foreign operations, is the most important predictor of entry strategy selection.
Blandon (1999) concurs and uses the number of countries where the bank has
branches or fully owned subsidiaries as a measure of its foreign experience. It is
argued that as firms gain more international experience, the level of uncertainty
regarding operating in foreign markets will reduce, which in turn, increases the
likelihood that such firms will use high cost/high control entry strategies. This view is
shared by Blomstermo et al (2006) who submit that as firms gain experience, they
gain confidence, gain a better estimate of risks and opportunities, and opt for high
control entry modes. Zhao and Decker (2004) articulate the counter-argument that
international involvement is negatively related to international involvement, i.e. the
more international experience the firm has the more efficient it is to adopt entry mode
with a lower level of control.

53
Makino & Delios (2003) concur that foreign market entry also has a path dependency
in which accumulated international experience leads to the development of knowledge
and capabilities useful for managing future international expansions. It is also argued
that experience reduces the perception of risk when entering foreign markets. Blandon
(1999) agrees and argues that the experience of the bank operating in a multinational
environment is usually considered as an important source of ownership advantage as
this experience will provide the bank with a skill to adapt operations in different
environments with relatively low cost, hence it is a determinant of an early entry.
Blomstermo et al (2006) argue that firms inexperienced in international markets are
less likely to know how to evaluate foreign contexts. They tend to overstate risks and
underestimate return on international markets, which has consequences for the
selection of foreign market mode.

2.8.0 Business/Regulatory Environment in the host country

The business environment in EMEs may entail larger operational risks because of the
state of legal and financial infrastructure and the lack of certain skills among financial
sector employees, according to BIS (2004). Yet Lai (2001) submits that international
investors attach great importance to the predictability, transparency, accountability of
the policy regime and the quality of legal and judicial systems in the host country.
Naaborg (2007) says that a consideration for foreign bank entry is host country
regulation, which generally limits competition and protects inefficient domestic
banks. He further argues that foreign banks prefer to invest in countries with fewer
regulatory restrictions. Lai (2001) however says that many countries have revised
their company law, commercial law, and banking, insurance and capital market laws,
which also help to improve the general environment for foreign investment. Cardenas
et al (2003) contend that legislation remains the basis on which a country ensures the
responsible behaviour of firms–whether domestic or foreign owned – within its
territory.

Lai (2001) suggests that international investments are driven to a location

primarily by the destination country’s favourable economic policies, good
conditions and facilities for conducting business as well as a host of other economic
factors such as resource endowment, size of domestic market, access to regional and

54
international markets, skilled labour force, factor cost, innovation capacity etc.
Naaborg (2007) concurs and says that foreign entry determinants are associated with
the institutional context of the host market and that such institutional parameters
include financial regulation, the quality of the financial supervisor, the quality of the
law enforcement, and the openness of the host country authorities towards foreign
bank entry and the role of information costs.

Political risk is one of the challenges often faced by foreign investors, especially in
relation to property rights. BIS (2004) define political risk as the risk of a low-
probability and high-cost event that involves a national government, by legislation or
fiat, either gradually or abruptly diminishing property or creditor rights.

2.9.0 Benefits of FSFDI

According to BIS (2004), FSFDI transforms the acquired financial firm into part of an
international (or global) financial institution. The provision of new capital is one
element of this transformation. The characteristic feature of FSFDI is, however, the
transfer of ownership and managerial control. It is further argued that the same
general considerations apply to greenfield investments. In this case, FSFDI establishes
an institution in the host country with characteristics basically comparable to those
that an acquired banking operation obtains through the transformation discussed
above. BIS (2004) also say that foreign ownership usually involves the transfer of
human capital on both the managerial and the operational level. Jenkins and Thomas
(2002) submit that FDI is generally associated with facilitating the transfer of newer,
faster and more productive technology to developing countries. It is also
acknowledged that foreign firms have the ability to improve the access of the host
country to international markets, since many are well connected globally in terms of
access to financial markets.

Moskow (2006) argues that due to cross-border banking, bank portfolios become
diverse, leading to decreased risk or a shift of the risk-return trade-off for banks. The
diversification can lead to less volatile lending over the local business cycle, since the
international presence allows banks to better withstand variability in local country
business conditions over time. Berger et al (2000) says that in addition to providing

55
more competition, the presence of foreign banks can alter the types of services
provided by banking organizations in individual markets. Jenkins and Thomas (2002)
suggest that increased rivalry between domestic and foreign firms could be beneficial
in terms of promoting competition, improving efficiency amongst inefficient firms,
and ensuring the most productive allocation of scarce resources. Also according to
Jenkins and Thomas (2002) a key developmental spill over of foreign direct
investment is job creation. They further cite Aaron (1999) who indicates that in 1997,
it was likely that FDI was directly responsible for 26 million jobs in developing
countries worldwide.

2.10 Conceptual Framework

Fisher (2004, p.7) says that concepts are the building blocks of models and theories
and they are the working definitions, which are used in the analysis for which they
have been devised or chosen. He further defines frameworks as analytical schemes
that simplify reality by selecting certain phenomena/variables and suggesting
relationships between them. Fisher (2004, p.9) further says, “In a conceptual
framework you put the concepts together as in a jigsaw puzzle. You work out how all
the concepts fit together and relate to one another.” He further suggests that
frameworks should be kept as simple as possible. The conceptual framework
suggested for this research by the foregoing literature review is shown in Figure 3
below:

Cultural Distance

Entry Mode
Capitalisation
(Firm Size)

Success/ Performance
Timing of Investment

Regulatory
Controls

Figure 3: Conceptual Framework for Performance of cross border investments

Source: conceptualised by the author of this report

56
CHAPTER 3.0: METHODOLOGY

3.1.0 Introduction
Saunders et al (2003, p.2) define methodology as the theory of how research should
be undertaken. They further say that the term method refers to tools and techniques
used to obtain and analyse data, such as questionnaires, observation and interviews as
well as both statistical and non-statistical analysis techniques. This chapter opens with
a discussion of different types of research philosophy and a justification of why the
author adopts the positivist philosophy for this research. A discussion of the deductive
and inductive approaches to research leads to the reasons for the choice of the
deductive approach. Consideration is also given to issues of the research strategy
applied, the sample size for the research and the methods of gathering data. The
chapter closes with a discussion of the limitations encountered during the research as
well as the reliability and validity of the research results.

3.2.0 Research Philosophy

Saunders et al (2003, p.83) argue that the research philosophy adopted depends on the
way that you think about the development of knowledge and three views about the
research process dominate the literature: positivism, interpretivism and realism.

Fisher (2004) says, positivism is an attempt to apply the scientific methods of hard
sciences such as physics to social and organisational matters and he further argues
that the task of positivist research is to find recurring patterns of association between
selected facts. Saunders et al (2003) concur and posit that if your research philosophy
reflects the principles of positivism then you will probably adopt the philosophical
stance of the natural scientist.

Fisher (2004, p.15) says that interpretative research, also sometimes known as
phenomenology, seeks people’s accounts of how they make sense of the world and the
structures and processes within it and the researcher tries to map the range and
complexity of views and positions that people take on the topic of the research.
Saunders et al (2003) on the other hand argue that realism is based on the belief that a
reality exists that is independent of human thoughts and beliefs.

57
The quest of this research is to establish whether there are links and if so the nature of
the links or recurring patterns of association between specific factors and the success
or performance of cross border investments hence the adoption of the positivist
philosophy. The interpretative philosophy would not suit the research because the
author is not interested in establishing what people think about the success of cross
border investments as a subject but how such success relates to or is influenced by
other variables such as cultural distance, timing, entry mode, regulatory controls
and capitalization. Realism on the other hand is clearly unsuitable for this research
because it assumes that the subject of cross border investments and their success or
failure are just part of a reality that exists independent of human thoughts and beliefs,
yet the success or failure of cross border investments is the result of the thoughts and
beliefs as well as choices of human beings and how they react to issues of cultural
distance, timing, entry mode and capitalization

3.3.0 Research Approach

Easterby-Smith et al (2002) quoted in Saunders et al (2003) suggest three reasons why
the approach that is chosen for a research project is important: 1) it enables you to
take a more informed decision about your research design, 2) it will help you think
about those research approaches that will work for you and crucially, those that will
not and 3) knowledge of the different research traditions enables you to adapt your
research design to cater for constraints. Saunders et al (2003, p.85) further ask
whether you should use the deductive approach, in which you develop a theory and
hypothesis (or hypotheses) and design a research strategy to test the hypothesis, or the
inductive approach, in which you develop theory as a result of data analysis. It is
further argued that the deductive approach owes more to positivism and the inductive
approach to interpretivism. For the purposes of this research, the author adopted a
deductive research method which according to Gill and Johnson (1997) entails the
development of a conceptual structure prior to its testing through empirical
observation. Another reason for the author to settle for that approach is that an
important characteristic of the deductive approach is the search to explain causal
relationships between variables, according to Saunders et al (2003). It is also further
argued that a topic on which you can define a theoretical framework and a hypothesis
lends itself more readily to the deductive approach, again according to Saunders et al
(2003).

58
The process of deduction is illustrated in Figure 4 below:

THEORY/HYPOTHESIS
FORMULATION

OPERATIONALISATION -
translation of abstract concepts into
indicators or measures that enable
observations to be made

TESTING OF THEORY
THROUGH OBSVERVATION OF
EMPIRICAL WORLD

FALSIFICATION CREATION OF AS YET

AND UNFALSIFIED COVERNG
DISCARDING LAWS THAT EXPLAIN
THEORY PAST AND PREDICT
FUTURE OBSERVATIONS

Figure 4: The hypothetico-deductive method

Adapted from: GILL, J., and JOHNSON, P., (1997). Research Methods for
Managers. 2nd Edition. London: Paul Chapman.

Gill and Johnson (1997) go on to say that the logical ordering of induction is the
reverse of deduction as it involves moving from the “plane” of observation of the
empirical world to the construction of explanations and theories about what has been
observed. They further argue that, in sharp contrast to the deductive tradition, in

59
which a conceptual and theoretical structure is developed prior to empirical research,
theory is the outcome of induction.

Saunders et al (2003) say that followers of the inductive approach criticise the
deductive approach because of its tendency to construct a rigid methodology that does
not permit alternative explanations of what is going on.

Fisher (2004) argues that critical social research, which is characterized by the belief
that the purpose of research should be to change society for the better, objects to
positivism, the interpretative approach and action research. Fisher (2004) says action
research focuses on the individual researcher’s understanding and values relating to
the research issue. It further purposes that the only way the researcher can improve
and challenge his or her understanding is by taking action and by learning from
experience. Fisher (2004) concludes that from a critical perspective interpretivism is
seen as giving more importance to understanding the world than changing it,
positivism is viewed as a tool for reinforcing oppressive structures and action research
is rejected because it ignores the need for big radical changes and concentrates on
small scale and individual change.

3.4.0 Research Strategy

Saunders et all (2003) say that your research strategy will be a general plan of how
you will go about answering the research questions you have set. They maintain that
strategy specifies sources from which you intend to collect data, and considers the
constraints that you will inevitably have such as time, availability of books and
articles.

The aim of the research was to, according to Gill and Johnson (1997) “test a theory
deductively by elucidating cause and effect relationships among set phenomena. He
further says that surveys attempt to test a theory by taking the logic of the experiment
out of the laboratory and onto the field. According to Saunders et al (2003) the survey
method is usually associated with the deductive approach. They further say that
surveys are popular because they allow the collection of a large amount of
standardized and therefore easy to compare data from a sizeable population in a
highly economical way by using a questionnaire. The author set out to gather data

60
from a people in management at banks that ventured into cross border banking and
those from the Reserve Bank of Zimbabwe monitor the cross-border activities of
banks. Within each sub-group, it was important for the data to be standardized hence
the efficacy of the questionnaire. It is further argued that the survey method is
perceived as authoritative because it is easily understood and gives the researcher
more control over the research process.

3.5.0 Sample
Gill and Johnson (2002) say that all surveys are concerned with identifying the
research population, which will provide all the information necessary for answering
the original research question. Saunders et al (2003) on the other hand argue that in
order to be able to generalise about the regularities in human social behaviour it is
necessary to select samples of sufficient numerical size. The population from which
data was gathered included managerial employees of those banks that embarked on
cross border investments and were still in operation. This limited the sample size to
20 people because 4 out of the 9 institutions under consideration were no longer
operational. The author had no choice but to gather data from those who were
directly involved in the internationalization efforts for these banks, which tended to be
a fairly small population. This is however in line with what Saunders et al (2003,
p.176) call purposive or judgmental sampling which enables you to use your
judgment to select cases that will best enable you to answer your research questions
and to meet your needs. The author also gathered data from the divisions of the
Reserve Bank of Zimbabwe where 10 respondents involved with cross border
investments, either at approval stage or at monitoring, were selected.

3.6.0 Method of Gathering Data

Fisher (2004) says that if you are doing positivist research then the questionnaires and
documentary resources, in the form of statistical databases, are obligatory. The author
mainly employed the self-administered questionnaire (completed by the respondents)
though interviews were conducted; especially with people from the Reserve Bank of
Zimbabwe because of the good relationships with them. Observation was also used in
order to gather primary data for the purpose of this research. A mixture of tick close-
ended questions with tick boxes and open-ended questions was chosen for the

61
questionnaire. The author also faced the difficulty that the cross-border activities of
Zimbabwean banks have not been documented through referenced articles and hence
there was considerable reliance on newspaper articles and on Internet Research for
electronic sources of secondary data on the cross border activities of Zimbabwean
banks. Questionnaires accompanied by a covering letter to explain the purpose of the
survey were sent by e-mail to the respondents, some of who were naturally in other
countries. For local respondents, there were the choices of physically handing the
questionnaires over or posting them but the author chose e-mail delivery because
according to Gill and Johnson (2002), where the choice is made to have self-
administered questionnaires, a key strategy that has become increasingly popular in
recent times has been the use of e-mail. Gill and Johnson (2002) says that e-mail
surveys entail major cost savings, are much quicker to conduct, non-responses are
easier to identify and chase up. Saunders et al (2003) however argue that the
disadvantage of the questionnaire is that much time will be spent in designing and
piloting the questionnaire, analyzing the results will be time consuming and the data
collected may not be as wide-ranging as those collected by other strategies such as
structured observation and interviews. He further says that the deductive approach can
be a lower-risk strategy, albeit that there are risks such as the non-return of
questionnaires. Gill & Johnson (2002) however say that the following can be used to
increase response rate: advance notification to persuade respondents of the survey’s
social utility, emphasis upon respondents’ importance to the project and its
confidentiality, follow up mailings to chase up non-respondents, provide incentives
for cooperation; have a good, clear and simple survey. The author therefore made sure
that he contacted potential respondents and secured their acceptance before
administering the questionnaire. Follow-ups were made by telephone to all
respondents at regular but well-spaced intervals. Where respondents appeared to take
inordinate time to respond, the author offered to interview them on the phone while he
wrote down the answers, to which they gladly obliged. This significantly improved
the response rate.

Saunders et al (2003) say that the purpose of pilot testing is to “refine the
questionnaire so that respondents will have no problems in answering the questions
and there will be no problems in recording the data. In addition, it will enable the
researcher to obtain some assessment of the questions’ validity and likely reliability of

62
the data that will be collected. The author used a select group of four people – two
from the Reserve Bank of Zimbabwe, the third a co-worker who used to work for one
of the banks that embarked on cross border banking and the last from RCL Uganda -
to pilot test the initial questionnaire and they were all able to answer most of the
questions without problems. The author however had to amend some questions that
appeared to challenge the respondents. Different questionnaires were used for
respondents from the Reserve Bank and those from the banks. Fisher (2004) endorses
this and says it might be anticipated that two different groups might have different
views and it might also be the case that both groups have conflicting views hence the
designing of separate questionnaires for banks and the regulator.

3.7.0 Limitations
While it is believed that the findings presented in this research are significant, there
are some limitations that must be acknowledged. The author encountered difficulties
in accessing imperative or tried and tested literature on the subject of cross border
banking in an African, let alone Zimbabwean context. Most of the references to cross
border-banking activities related mainly to the European context.

Respondents from both the Reserve Bank of Zimbabwe and from banks were not
forthcoming with some information, especially of a strategic nature, which they
considered to be of a sensitive nature. Despite being assured verbally and in writing
that all responses would be treated with utmost confidentiality and be used for
academic purposes only, respondents from the Reserve Bank of Zimbabwe were
concerned that the author might end up accessing information that would give his
employer an unfair advantage in its cross border initiatives. Respondents from other
banks were also concerned that the author might also gain access to strategic
information. In one case, the respondent requested the author to the Public Relations
Executive of the Bank, who politely declined the request and apologised for being
unable to help. In another case one of the respondents had to refer to an Executive
Director for permission and fortunately, it was granted. In some cases the author had
to undertake to avail the completed study upon completion in order to persuade the
respondents to complete the questionnaire or to be interviewed. Of great assistance
to the study was some of the banks (such as ABC) under consideration are public

63
institutions who are bound by strict disclosure requirements and whose activities are
constantly in the public eye. The author was therefore able to gather a lot of
information on the performance of these organisations from Annual Reports and the
print media. The capital raising activities of ABC Holdings for instance, received
wide coverage in the local and foreign print media, from which the author drew
extensively. The author also drew from a case study on African Banking Corporation,
which was carried out in 2002 by Manning, an MBA student from Rushmore
University.

Though comparison of the financial performances of the banks would have produced
interesting findings for this research in terms of the relative performance of the cross
border investments, the author was not able to obtain financial information for those
that were no longer operational such as Zimbank Botswana Limited, Century Bank
International and Barbican Bank Limited. In order to assess the performance of the
existing operations such as Intermarket Banking Corporation Limited, Zambia and
RCL Uganda, the author relied on the consolidated financial statements of the
Zimbabwean parent companies (ZB FHL and RFHL). KFHL did not even mention
KBAL in its consolidated unaudited results for the period ending 30 June 2007 but the
author managed to get First Discount House, Malawi’s Audited Financial Statements
for the Year Ended 31 December 2006. ABC was the only one for which
comprehensive Annual Reports were available from the year 2002.

3.8.0 Reliability and Validity.

Saunders et al (2003) say reducing the possibility of getting the answer wrong means
that attention has to be paid to two particular emphases on research design: reliability
and validity. They also argue that reliability of the research results can be assessed by
asking whether the measures will yield the same results on other occasions and
whether similar observations can be reached by other observers. Zhao and Decker
(2004) suggest that people studying a problem with different expectations may arrive
at different conclusions. They further argue that different samples selected, different
time period analysed, different methodologies used, or even different skills of the
analysts may also induce conflicting results, especially in empirical studies. The
measures employed in this questionnaire are most likely to yield the same results on
other occasions because the banking institutions from which the respondents were

64
selected targeted the same countries for their cross border banking activities and faced
the same broad challenges. Saunders et al (2003) therefore suggest that “the
robustness of the conclusions in this research may be tested by exposing them to other
research settings” such as the cross border banking activities of banks from other
countries.

The author however notes that a threat to the reliability of the results of this research
is subject or participant error. Saunders et al (2003, p.101) say this occurs when
interviewees may have been saying what they thought their bosses wanted them to
say. For instance, where the company failed, the respondents may have responded in a
manner that cast their organisations as victims of circumstances instead of their own
decisions.

Saunders et al (2003, p.101) say validity is concerned with whether the findings are
really about what they appear to be about. The results of the research were generally
consistent with the concepts discussed in the literature, and the most of the key
findings were expressed by the majority of respondents from different organisations
and with experiences in different countries. This therefore endorses the validity of the
findings.

65
 CHAPTER 4.0: DATA ANALYSIS

4.1 Introduction

The chapter presents the findings of the research in the form of an analysis of the

questionnaires for banks and the RBZ. The results are presented graphically through

pie charts, graphs and tables. The chapter closes with a presentation of the summary

of the major findings, the common findings and the unique findings of the research.

12 questionnaires for banks out of 20 were returned for a response rate of 60%; 7

questionnaires for the RBZ were returned out of 10 for a response rate of 70%.

4.2.0 Questionnaire for Banks

4.2.1 Question 1: State the countries in which your institution established foreign

operations?

Respondents said that their institutions had established foreign operations as follows:

BANK BOTSWANA MALAWI MOZAMBIQUE SOUTH TANZANIA UGANDA ZAMBIA

AFRICA

ABC 100% owned 100% owned Representative 74% owned 100% owned
Greenfield Acquisition Office (100% Acquisition Acquisition
owned
Greenfield)
BARBICAN 50% owned 68% owned
Greenfield Greenfield*

CENTURY 100% owned Acquisition Regional Office

Greenfield (100% owned
Greenfield)
IHL 98% owned
Greenfield
KFHL 100% owned 25.1% owned 25% owned
Greenfield but Greenfield Acquisition.
KFHL diluted KFHL later
to a 32% stake divested
RFHL 100%
owned
Greenfield
THL Acquisitions:
• 100% in Nicorp
Securities
• 60% in TFL
• 49% in TSL
ZBFHL 100% owned 98% owned
Greenfield Acquisition

TOTAL 5 3 1 3 1 1 4**

*
It was later established that Barbican Asset Management in fact funded the whole operation from Zimbabwe
**
The Intermarket/ZB FHL investments in Zambia are considered separately because of the different modes of entry

66
 39%

61%

Greenfield Acquisition

61% of the investments considered in this study were greenfield investments while

39% were acquisitions.

67
4.2.2 Question 2: Which of the following economic factors motivated your
organisation to invest in the country/ countries that you chose?

Respondents said that their organisations were motivated by the following factors to
invest in the countries they chose:
• Opportunity in domestic market/unmet needs in financial services
• Favourable economic policies
• Positive economic growth prospects
• Expected relative profitability
• Access to regional and international markets
• Defensive expansion (defined as “following client”)

6% 6%
18%

24%

28%
Favourable economic policies
Access to regional & int'l markets
Positive Economic growth prospects
18%
Expected relative profitability
Defensive expansion
Unmet fiancial needs in host market

68
4.2.3 Question 3: Which of the following factors played an influential role in the
bank’s decision on the entry mode chosen for each country?

The respondents said that the following factors played an influential role in the bank’s
decision on the entry mode chosen:

• Lower capital requirements

• Group experience in the mode
• Available resources (given foreign currency constraints)
• Degree of centralisation of decision-making
• Organisational culture
• Size of organisation

0 2 4 6
Organisational Culture
Size of organisation
Degree of Centralisation of Decision making
Available Resources
Experience in mode of entry
Lower Capital Requirements

69
4.2.4 Question 4: Did your bank find that moving early into a foreign market could
be a competitive action that potentially leads to first mover advantages in relation to
home country rivals?

No
0%

Yes
100%

Yes No

All the respondents (100%) agreed that moving early into a foreign market is a
competitive action that potentially leads to first mover advantages in relation to home
country rivals.

70
4.2.5 Question 5a): Which were the main, if any, obstacles, which your organisation
encountered at the time of entering the host country?

The respondents identified the following obstacles encountered by their organisations

upon entering the host countries:

• New business environment where the financial environment is not as

sophisticated as Zimbabwe
• New business culture where people work at a slower pace
• Language
• Acceptance problems
• Capitalisation
• Home country risk

8%
23%

23%

8%

38%

New business environment Cultural Differences

Acceptance problems Inadequate Capitalisation
Home Country risk

71
Question 5b): From the following list, identify risks that your organisation is
currently facing in the countries in which it has investments.

The main risks identified by respondents as being faced by their organisations in the
countries they have investments:
• Corruption (it is a big issue in Uganda)
• Unreliable infrastructure and services
• Political uncertainty
• Macro-economic instability
• Regulatory and legal uncertainty

14%
29%

29%
14%
14%

Corruption Unreliable Infrastructure

Political Uncertainty Macro-economic instability
Regulatory and legal uncertainty

Corruption and macro-economic instability were identified as the biggest risks being
faced by the banks.

72
4.2.6 Question 6: Did your bank find Exchange Controls both in the home country
and in the host country to be a constraining factor to cross-border banking activities?
If your answer to the question above is yes, please state the manner in which they
affected the bank’s cross-border activities.

87% of the respondents said that they found Exchange Controls to be a constraining
factor in the home country because they are restrictive in terms of the amount of
capital to be injected at the start of the new operation and anytime thereafter when
there is such a need. 13% said that they did not find Exchange controls to be
constraint.

No
13%

Yes
87%

73
4.2.7 Question 7: Did the difference between the national culture of the host country
and the national and corporate culture of your organisation create problems with
the acceptance, implementation and effectiveness of human resources management
practices in host countries? If your answer to the above is yes, please state the
circumstances under which this happened.

80% of all the respondents agreed and 20% disagreed that the difference between the
national culture of the host country and the national and corporate culture of your
organisation creates problems with the acceptance, implementation and effectiveness
of human resources management practices. Those who agreed cited:
• There is no culture of investment
• Presenting unsolicited proposals did not work, in fact such ideas would be stolen
and used elsewhere without reference to the source (ethical issues)
• The work ethic in the host country is different and the skills levels are lower,
hence there is a difference in the work knowledge and output of workers as they
have no hurry in their way of doing things
• Corruption is a culture in the host country and our organisation is not used to
giving “brown envelopes” in order to win jobs.
• Tswana people generally do not borrow, and when they do so it is on a low scale

No
20%

Yes
80%

Yes No

74
4.2.8 Question 8: What were the bank’s considerations when deciding for a
greenfield investment or an acquisition?

Respondents advanced the following reasons for their organisation’s choice of entry
mode:
• A greenfield was an alternative after an acquisition failed. In an acquisition,
there are greater chances of buying what you do not quite know even if one
performs a due diligence. With a greenfield one is able to launch a clean pad
and introduce a clean brand in a new market.
• It is cheaper (capital wise) to start a greenfield compared to an acquisition
• With an acquisition you will have to deal with different organisation
cultures and these would have to be merged and sometimes it’s not successful
• Control aspect. Who would be in control, the local element or the foreign
element? Possible disagreements can emerge.
• The bank went on a Greenfield investment. This route is expensive and led to
continuous losses.
• Ease of entry and established market penetration.

75
 4.2.9 Question 9: What was the initial investment amount for each country your
company invested in? Please comment on the initial adequacy of capital for the
individual projects that your company undertook? Include information on whether
any of the investments have since faced any capital adequacy problems.
The initial capital injection amounts for some*** of the projects are as follows:
No Bank Capital Injection Comments
1. ABC (All regional operations) US$2, 000,000.00 “One of the things that we have decided is that we
will never ever start a bank without US$10
million in capital… because you really have to
stand on the strength of your brand and the
strength of your capital. Starting a business with
US$2 million capital like we did is just untenable,
especially if it’s compounded by the Zimbabwe
contagion. Capital is your last line of defence, if
you are weak on your last line of defence, you
don’t have a defence at all.” – Douglas Munatsi,
ABC Group CEO
2. Barbican (All regional It was not possible to establish the “All the group’s operations in the region are
operations ) exact amount of initial capital. technically insolvent and survive on the cash
Large sums of money are transfers being made from Barbican Zimbabwe
however reported to have been into operations in London, South Africa and
transferred including a loan of Botswana” – Senior Executive of Barbican
R9, 125,461.00 (approximately Holdings Limited (Pty) Limited (South Africa)
USD1, 300,000.00) that was from 1 February 2003 to 30 November 2003
eventually converted to ordinary
share capital.
3. KFHL (Invetrust Zambia) US$971, 000.00 Later transferred to KBAL after KFHL failed to
increase their stake from 25% to 51%.
4 KFHL (KBAL Botswana) Below US$500, 000.00 “We fell below the minimum capital requirement
of U$500,000.00 in May 2005. However, the Bank
of Botswana inspected the unit and asked us to
meet the capital thresholds by August 31, 2005.
We met this and resumed normal operations. In
February 2006, we transferred with support and
approval of the RBZ our proceeds of USD971,
000.00 meaning we had almost doubled the
minimum capital levels.” - Nigel Chanakira,
KFHL Group CEO.
5 RFHL (RCL Uganda) US$200, 000.00 “The capital injected was not adequate to allow
proprietary trading by the company. This is
important especially when advisory projects have
long gestation periods to generate revenues. There
is a need for the ability to trade for own account to
cover expenses” Senior Manager, International
Operations, RFHL
6 ZBFHL (Zimbank Botswana) US$2,100,000.00 (BWP13 “One of the reasons for the failure of Zimbank in
Million) Botswana was that it was continually
undercapitalised.” - Charles Harvey, Author of
“Banking Policy in Botswana: Orthodox But
Untypical.

***
NB. It was not possible to establish initial capital injection for some of the projects, especially those that had been shut down.
The Reserve Bank could not release the figures due to confidentiality issues. However, the study established that all the
investments faced capital adequacy issues at some point, leading to either closure or recapitalisation.

76
4.2.10 Question 10: What factors were considered in the timing of cross-border
investments by the organisation?

Respondents cited the following factors as considerations for the timing of cross
border investments made by their organisations:

• First mover advantage

• Spreading/Diversifying Country Risk
• Time into emerging economy where services are still limited/ Business growth
potential/ Growth stage of the foreign market
• Hard currency earning potential
• With the economic problems in Zimbabwe, there was a need to diversify
sources of income
• Strategic direction – to be an influential investment-banking group in sub-
Saharan Africa required that the company is operational in other countries as
well.
• Maturity stage of both the parent company and the home market
• Availability of relatively cheap labour from the home market
• Availability of capital
• Economic and Regulatory environment

The main factors cited by respondents were availability of capital, urgent need to
diversify sources of income and country risk, first mover advantage and the
economic and regulatory environment.

77
4.3 Questionnaire for the Reserve Bank of Zimbabwe
4.3.1 Question 1: What reasons are often cited for cross-border investments by
banks?
Respondents cited the following reasons:
• To increase flows of income/ Foreign currency source
• To explore new markets/Expansion/Growth Strategies
• Tax Relief especially in Mauritius, Botswana and Zambia
• Broaden the scope of foreign capital/ Create offshore balance sheet for
borrowing purposes
• Capital injection/ To boost capital
• To create joint ventures with foreign investors who are not prepared to invest
in Zimbabwe/Strategic alliance with other financial institutions
• Enhance profitability of operations

23%
15%

8%
23%

31%

New Markets Diversify Income Streams

Tax Relief Create Offshore Balance Sheet
Growth Strategy

78
4.3.2 Question 2: In your experience as a regulator, which are the main, if any,
obstacles encountered by local financial institutions when entering the host countries
of their choice?

The obstacles identified by respondents are:

• Meeting the regulatory requirements of other countries/Meeting regulatory
requirements that are in tandem with local requirements
• Capital constraints/Raising start-up capital form the local market
• Competition
• Lack of confidence with Zimbabwean banks/ Being accepted by foreigners
especially coming from a controlled foreign exchange regime
• Country risk/Restrictive trading practices (indigenisation policy on
shareholding)
• Exchange Controls
• Cultural acceptance

17%
8% 8%

17%

33%
17%

Regulatory Requirements Capital Constraints Acceptance

Competition Country Risk Cultural acceptance

79
4.3.3 Question 3: What factors does the Reserve Bank consider as the key entry
determinants for a particular market?

Respondents said that the Reserve Bank considers the following factors as key entry
determinants for a particular market:
• Potential to generate revenue (viability of the project)/ Capacity to pay back
capital within 3.5 years
• Effect of the venture on the capital account of Zimbabwe/Benefits that will
accrue to the business and to Zimbabwe
• Track record of the company intending to invest
• Performance of previous cross border investments if there are any
• Availability of enough start up capital not to disturb the operations of the local
entity
• Regulations governing dividend remittability

0
Viability
Benefits/Effects to Home Country
Track Record/ Experience
Performance of Previous Investments

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4.3.4 Question 4: What factors does the Reserve Bank consider when granting
Exchange Control approval for cross border investments?

Respondents said that respondents said that the Reserve Bank of Zimbabwe considers

the following factors when granting approvals for cross-border investments:

• Capability to fund the operation with no borrowings/impact on local

operations
• Performance of the company locally (track record in Zimbabwe)
• Benefits accruing to Zimbabwe from the proposed investment
• The recommendations of the Bank Supervision & Licensing Department
• The market being entered into
• Performance of previous cross border investments if there are any
• Ability to declare dividends, which will enable the investor to pay back the
initial capital injected into the cross border investment
• Regulatory approval by the host country of the cross border institution
• Availability of foreign currency

10% 20%
10%

20% 20%

20%

Capability to fund Compliance Issues

Benefits to country Home Country performance
Availability of foreign currency International experience

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4.3.5 Question 5: Do Exchange Controls play a facilitative role in the cross border
banking activities of Zimbabwean Banks? If the answer is YES, please indicate in
what way they do so.

40%

60%

Yes No

The respondents who said that Exchange Controls play a facilitative role in cross-
border banking activities said they do so in the following ways:
• By giving advise to potential investors in the markets they intend to get into
and what potential challenges they might face
• Thorough appraisal of the project from a neutral perspective
• Approving the application where there is potential
• Advising what to submit to the Reserve Bank with application to ensure that
the application is successful
• Advising on how to account for earnings so that the investor is not in violation
of the regulatory framework
• Although cross border activities of the banking sector are not covered
under the current Exchange Control regulations, facilitation is provided
through the submission of such applications to the Exchange Control Review
Committee which comprise the Ministry of Finance and the Reserve Bank

82
Governor. The Working Party to this committee looks at each case on its own
merit and recommends for approval or rejection to the Review Committee,
which has final say on the application.

83
4.3.6 Question 6: What criteria does the Reserve Bank use to evaluate the
performance of cross border investments?

Respondents said that the Reserve Bank uses the following criteria to evaluate the
performance of cross-border investments:
• Dividend remittances
• Payback period of the initial capital injected
• Growth of the investment
• On site monitoring/Site visits to check on progress being made
• Offsite monitoring/Analysis of financial statements of the project at regular**
intervals
• Rely on inspection reports from the host country’s regulatory /Supervisory
board
• Some respondents noted that there is currently no defined framework but the
Reserve Bank is working on one

10%
10%

50%

30%

Dividend Remittances Payback Period

Growth No defined framework

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4.3.7 Question 7: Based on the criteria in Question 6, how would you rate, out of a
scale of 10, the overall performance of cross border investments by Zimbabwean
banks for each criterion?

Based on the identified criteria, respondents rated cross border investments by

Zimbabwean Banks.

CRITERION RATINGS (OUT OF A SCALE

OF 10)
Dividend Remittances 4.5
Payback Period 7
Growth 4
Average Rating 5.2 (52%)

85
4.4 Summary of Findings

4.4.1 Major Findings

• Access to new (regional and international) markets and favourable economic

policies were the main motivators for Zimbabwean banks in choosing a host
country.

• Respondents were unanimous that moving early into a foreign market is a

competitive action that potentially leads to first mover advantages in relation
to home country rivals.

• The major obstacles encountered by Zimbabwean banks upon entering

regional markets were cultural differences, alien (sometimes less
sophisticated) business environments and inadequate capitalisation.

• Home country Exchange Controls was a constraining factor to the cross-

border investment activities of Zimbabwean banks. The banks however did
not face similar challenges in the host countries, as most do not have
Exchange Controls.

• Differences between the national culture of the host country and the national
and corporate culture of Zimbabwean banks created problems with the
acceptance, implementation and effectiveness of management practices in host
countries.

• The majority of cross-border investments made by Zimbabwean banks into the

region were greenfield investments.

• The banks’ choice of entry mode was influenced mainly by the experience of
the organisation as well as the desired degree of centralisation of decision-
making.

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 • All cross-border investment projects made by Zimbabwean banks faced
capital adequacy problems at some point, leading to either closure of the entity
(Zimbank Botswana) or recapitalisation (Kingdom Bank Africa Limited).

• Due to cross-border banking, bank portfolios become diverse, leading to

decreased risk or a shift of the risk-return trade-off for banks. According to
ABC’s 2006 Annual Report Zimbabwean operations’ contribution to group
profits reduced from 92% in 2005 to 67% for the year ended 31 December
2006 and though Zimbabwe was expected to continue to be a significant
contributor to group profits, albeit at a reduced level.

4.4.2 Common Findings

• Respondents in both categories agreed that the search for new markets as well

the attraction of favourable economic policies were the major factors

motivating Zimbabwean banks to invest in specific countries.

• Capitalisation was cited by the majority of respondents from both the Reserve

Bank and banks as one of the major challenges faced by banks upon

embarking on cross border investments.

4.4.3 Unique Finding

• The unique finding was that the majority of the respondents from the RBZ

(60%) said that Exchange Controls were facilitative of cross border

investments yet 87% of the respondents from banks said they found exchange

controls to be a constraint to their cross border activities.

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CHAPTER 5.0: INTERPRETATION

5.1 Introduction

This chapter evaluates the major research findings in relation to the conceptual

framework, the research objectives and the hypothesis. The author interrogates the

link between the concepts raised by the research questions in the context of the

hypothesis.

5.2 Major Findings

5.2.1 Choice of entry mode

The research established that the factors that influenced banks’ decisions on the
choice of entry mode were the lower capital requirements in the host country, the
required degree of centralisation of decision-making, the company’s experience in the
chosen mode of entry as well as the limited availability of resources (capital) due to
foreign currency constraints in their home country. Respondents said that in an
acquisition, there are greater chances of buying what you do not quite know even if
one performs a due diligence exercise. They further said that with a greenfield one is
able to launch a clean pad and introduce a clean brand in a new market. This is
consistent with the argument put forward by Meyer and Estrin (1999) that a
greenfield project gives the investor the opportunity to create an entirely new
organization to its own specification although this usually implies a gradual market
entry, while an acquisition facilitates speedy entry to the local market and access to
resources, but the acquired firm will not necessarily match the organization of the
investor.

The study also established that with an acquisition you will have to deal with
different organisational cultures and these would have to be merged and sometimes
it’s not successful. This challenge was recognised by Kessapidou and Varsakelis
(2002) who posited that differences in national culture influence not only the entry
mode but also the perceived difficulty surrounding the integration of foreign
personnel in the operation. This risk of misconception of management practices is
much lower when the firm enters through greenfield than through acquisition; argue

88
Friberg and Loven (2007. In justifying greenfield investments, the respondents
raised the issue of the control aspect between the foreign and local parties in an
acquisition, that might see disagreements emerge. This leads to what Investopedia
(2007) calls acquisition indigestion, a term describing an acquisition in which the
companies involved have trouble integrating with one another.

The study also established that the majority 61% of cross-border investments made by
Zimbabwean banks into the region were greenfield investments while 39% were
acquisitions. This corroborates the submission by Friberg and Loven (2007) that it has
been shown that Greenfield entries outperform acquisitions in terms of survival. The
findings are also in line with those of Jenkins and Thomas (2002) who note that
greenfield investment has been the more common method of entry into Southern
Africa, though they acknowledge that a significant proportion of worldwide FDI in
the past decade, to developing as well as developing countries, has been in the form of
mergers and acquisitions, as opposed to greenfield investment.

Zhao and Decker (2004) submit that the choice of foreign market entry mode is one of
the most critical decisions for companies because it affects future decisions and
performance in foreign markets. Friberg and Loven (2007) also contend that a
number of studies suggest that the choice of foreign market entry mode has a
significant impact on survival and performance of foreign subsidiaries. Of the 11
greenfield investments, 6 (55%) where still operational at the time of the study while
5 (45%) were no longer operational. It is pertinent to note that of the 5 greenfield
investments that failed, 4 of these were attributable to two banks (Barbican and
Century) and had to be closed down after their parent companies in Zimbabwe faced
liquidity and viability challenges in the wake of the banking crisis in 2003/2004. The
other greenfield investment by Zimbank in Botswana failed ostensibly because it was
continually undercapitalised and had a high cost structure, according to Leith (1998).
The study does not therefore manage to prove that these investments failed because of
the entry mode chosen but attributes the failure to other variables. Acquisitions scored
better in terms of survival with 5 (71%) of the investments still operational while 2
(29%) were no longer operational. It is pertinent to note that 3 of the surviving
acquisitive investments belonged to one institution, African Banking Corporation. On
the basis of financial performance, growth prospects and footprint or number of

89
countries covered, ABC has had the most successful regional expansion programme.
75% of their investments were in the form of acquisitions and this tends to confound
Friberg and Loven (2007)’s assertion that it has been shown that greenfield entries
outperform acquisitions in terms of survival.

5.2.2 Culture and Cultural Distance

The research establishes that one of the obstacles encountered by Zimbabwean banks
upon entering regional markets is cultural differences. 80% of all the respondents
agreed and 20% disagreed that the difference between the national culture of the host
country and the national and corporate culture of your organisation creates problems
with the acceptance, implementation and effectiveness of management practices.
Blandon (1999) argues that firms therefore tend to initiate foreign involvement in
those locations that are relatively similar to their country of origin. Cited by
Blomstermo et al (2006) Kogut and Singh (1998) say that it can therefore be expected
that a higher cultural distance between any two countries will act as a deterrent for
cross border banking movements. This explains why there are currently no
Zimbabwean banks in Angola, and only one (ABC) in Mozambique, two former
colonies of Portugal that share the Portuguese language. The Zimbabwean banks
considered in this study mainly invested in Botswana, Malawi, Tanzania Zambia and
Uganda which are all, like itself, English-speaking countries. This validates the
assertion by Blandon that cross-border banking movements tend to occur first
between countries with similar cultural similarities, revealing the importance of
national culture as a locational advantage in multinational banking.

The study establishes that despite the apparent similarities in culture, particularly in
language terms, banks encountered challenges in terms of acceptance, implementation
and effectiveness of management practices in host countries due to the inherent broad
differences between the national culture of the host country and the national and
corporate culture of Zimbabwean banks. In Uganda for instance, one bank (RFHL)
encountered a new “business culture where people work at a slower pace”. The work
ethic is also different, “the skills levels are lower, and hence there is a difference in
the work knowledge and output of workers as they Ugandans have no hurry in their
way of doing things.” It was also noted that in Uganda, “Presenting unsolicited

90
business proposals did not work and in fact such ideas would be stolen and used
elsewhere without any reference to the source, raising the issue of ethics.”
Respondents also noted “the culture of investing is not there.” This is confirmed by a
report from The East African Newspaper (August 2007) that only 38% of Ugandans
save and borrow money. RFHL found that corruption is so entrenched that it is
considered “a culture in Uganda and our organisation is not used to giving brown
envelopes* in order to win jobs.” Another bank found that “the Tswana people don’t
generally have a culture of borrowing, and if they do so, it is on a very low scale.”
Additionally, ABC’s Annual Report (2006) refers to “the perennial non performing
debt problem in Botswana.” This clearly points to a poor credit culture in that country.
This poor credit culture is actually evident in other countries such as Tanzania where
“a reasonably good performance was somewhat dented by a huge impairment of loans
and advances of some BWP4.8 million” and Zambia. In fact the group further makes
reference to “the perennial problems of bad debts”, and resultantly acknowledges that,
“Credit risk has continued to be a key area receiving attention from the risk
department.” ABC’s 2006 Annual Report mentions that “Zambia recorded modest
growth due to challenges in mobilizing local currency funding.” This indicates that
the culture of saving may be lacking in Zambia.

These differences in national culture, according to Kessapidou and Varsakelis (2002)

influence not only the entry mode but also the perceived difficulty surrounding the
integration of foreign personnel in the operation. Zhao and Decker (2004) argue that
cultural distance is a factor to be considered when entry mode decision is being made,
but they however argue that it is not a determinative one, and it should not be an
obstacle of entering into a potential market with the right mode. Friberg and Loven
(2004) also acknowledge that a relationship has been found between cultural distance
and performance in the short run but further argue that this difference is in fact not
sustained in the long run, hence cultural distance appears to become less important
after a number of years in the host country. This is apparent in the cases of ABC,
which indicated in its Annual Report (2006) that after close to seven years in the
regional markets it has “ successfully dealt with the perennial problems of bad

*
This was described by a respondent as “the concept of giving someone money for you to win a job
etc. The brown envelope is the non-transparent envelope that you hand over to people for you to win
the contract.” In short, the concept is that of bribery.

91
debts… and the Group is now on a firm footing to achieve sustained growth going
forward,” and RFHL which also indicated in its Unaudited Financial Statements for
the half year ended 30 June 2007 that after slightly more than two years in Uganda, it
was beginning to enjoy “a healthy brand presence and recognition in the market”
mainly due to “an aggressive marketing strategy and enhanced service delivery to
clients.” See Appendix 7 showing Five-year financial highlights for ABC on a
historical cost basis. This clearly shows profit after tax making a significant deep from
USD9.88 million in 2002 to USD255, 000.00 in 2003 and then steadily rising in 2004
to USD8.588 million, then USD11.354 million in 2005 and finally
USD15.874million.

5.2.3 Regulatory Controls

5.2.3.1 Exchange Controls
87% of the respondents established that regulatory controls in the form of home
country exchange controls were a constraining factor to the cross border investment
activities of Zimbabwean banks. These respondents cited the limitations imposed by
the Reserve Bank of Zimbabwe in terms of the amount of capital that may be taken
out of the country to fund foreign operations. Predictably; 60% of the respondents
from the Reserve Bank said that exchange controls facilitate cross border investments,
although interestingly, there was no unanimity on the issue with 40% saying they do
not. The existence of exchange controls in Zimbabwe reflects the views of Dunn
(2002) who says, “The belief that balance-of-payments deficits can be eliminated
through a set of strict administrative controls on international transactions has, after
decades of disrepute among economists, regained semi popularity.”

It is pertinent to note that the banks considered in this study did not face similar
challenges in the host countries, and in fact the absence of exchange controls in the
host countries was one of the attractions for Zimbabwean banks. Uganda and
Botswana are among the African countries that are known to have abolished
Exchange Controls. According to The Economist (1999) Botswana abolished
Exchange Controls in 1999 while the United Nations (2004) says that, “Uganda has
one of the most open business environments anywhere on the African Continent. All
foreign-exchange controls have been abolished and in July 1997, capital-account

92
controls were also removed. As a result, residents have access to foreign currency at
market-determined exchange rates for all transactions. They may also hold bank
accounts in foreign currency inside or outside Uganda. Capital flows freely in and out
of the country.”

Dunn (2002) argues, “Exchange controls simply do not work very well, and the
longer they are in place, the worse the outcomes they produce. They are easily
evaded, and the combination of avarice and ingenuity, upon which modern economics
rests, guarantees that evasion routes will be found and aggressively pursued.” Quoted
by Marrs (2005), Tito Mboweni, the South African Reserve Bank governor said, “For
all intents and purposes exchange controls have become purposeless as the cost of
exchange control administration and the inconvenience that goes with managing them
might not be worth the exercise.” He further argues that relaxation of exchange
controls could in fact boost confidence in the country as an investment destination and
prompt inflows of foreign capital rather than the feared outflows. Jenkins and Thomas
(2002) are agreeable to this and suggest the phasing out or scaling down of exchange
controls on non-residents in those countries where they remain.

5.2.3.1 Supervision
The study revealed that the Reserve Bank of Zimbabwe does not have a clearly
defined assessment criteria for cross border investments. 50% of the respondents cited
dividend remittances while 30% cited payback period. Growth (10%) was also
indicated as a criterion but no indication of how it is specifically measured was made.
10% said there was no defined framework and instead indicated that they rely on
onsite monitoring, which is really a means of supervision and not a measure of
performance. It was also noted that there is some reliance on inspection reports from
the host country’s regulatory or supervisory board and analysis of financial statements
of the projects at regular intervals. This indicates that the Reserve Bank relies more
on offsite monitoring, which is clearly not sufficient given what happened to
Barbican Holdings (Pty) Limited, South Africa. Some respondents indicated that on
site monitoring is not being practiced because of foreign currency shortages. Other
respondents noted that there is currently no defined framework to measure the
performance of cross border investments but the Reserve Bank is currently working
on one. Overally, based on the criteria of dividend remittances, payback period and

93
growth, the Reserve Bank of Zimbabwe rated the success of cross border investments
at 52%, which is not a flattering figure. In its Exchange Control directive referenced
RE: 259 of 17 July 2003, The Reserve Bank’s Supervision and Surveillance Division
said “due to persistent balance of payment pressures and non-performance of
approved cross border investments, Exchange Control will no longer process new
cross border investment proposals involving foreign currency remittances. This policy
is being adopted as a temporary measure, and will be reviewed when the foreign
currency situation improves.”

The study established that Zimbabwean banks were attracted to countries with less
or no Exchange Controls such as Uganda, Botswana, Mozambique, Tanzania and
Zambia because according to Lai (2001) international investors attach great
importance to the predictability, transparency, accountability of the policy regime and
the quality of legal and judicial systems in the host country. This is also consistent
with Naaborg (2007)’s assertion that foreign banks prefer to invest in countries with
fewer regulatory restrictions.

According to a Banking Supervision Report (2002), the Reserve Bank of Zimbabwe

acknowledges that cross-border investments by banking institutions and also banking
groups have brought about the need for effective cross-border consolidated
supervision by regulatory authorities in the jurisdictions/countries involved. In this
respect, the supervisory authorities have proceeded by way of Memoranda of
Understanding (MoU), which serve to establish the authority responsible for
consolidated supervision; arrangements for the sharing of supervisory information
amongst the respective supervisory authorities; conduct of on-site examinations and,
in general the continuing communication and cooperation with respect to the
prudential supervision of relevant bank holding companies, their subsidiaries and
affiliate entities.

5.2.4 Capitalisation
The findings show that all (100%) of the cross border investments by Zimbabwean
Banks that were the subject of this study faced capital constraints in one form or
another ranging from outright capital inadequacy (KBAL and Zimbank Botswana),
inadequacy of capital for purposes of allowing proprietary trading by the company in

94
order to cover costs (RCL Uganda) and inadequacy of the capital in terms of
preventing the bank from underwriting significant business (ABC Holdings Limited
annual report for 2006 says that “ Tanzania held fort in spite of not having significant
capital and closed the year with a vibrant deal pipeline.”), thereby stunting growth.

Both KFHL and Finhold failed to recapitalise their subsidiaries in Botswana when
called upon to do so, leading to a take over in the case of Zimbank Botswana and
temporary management by the Bank of Botswana in the case of KBAL, only lifted
upon transfer of USD971, 000.00 being disinvestment proceeds from Zambia. KFHL
failed to capitalise the operation from Head Office in Harare due to the critical foreign
currency shortages. This is consistent with the argument posited by Goldberg (2007)
that more evidence is needed on the question of whether foreign banks can, and do,
receive additional capital from their head offices in times of stress. KFHL had to
invite other investors to partake in its new commercial bank but was not in a good
position to participate in any future capital calls in the new bank given the worsening
foreign currency situation in Zimbabwe and as such faced further dilution going
forward. The Reserve Bank of Zimbabwe (2006) recommends that shareholders must
have the capacity to meet current and future capital needs of the institution. The
behaviour of Finhold with respect to Zimbank Botswana Limited is at variance with
this and the submission by Makler and Ness (2002, p.840) cited by Cardenas et al
(2003) that if a subsidiary of a foreign financial institution fails, it is assumed that to
maintain its reputation the parent bank will ensure the solvency of the subsidiary.
However on the other hand Cardenas et al (2003) also submit that one strategy to
reduce reputation costs consist in selling subsidiaries at a low price or even paying
investors to acquire them instead of letting them fail.

According to the Reserve Bank, in July 2005, it carried out a comparative analysis of
the country’s minimum capital requirements with other jurisdictions in the region and
the research indicated that local minimum capital requirements were generally below
international levels. Subsequently minimum capital requirements were reviewed
upwards and pegged in US dollars with effect from 30 September 2006. (See
Appendix 8 for an extract of BLSS Annual Report of 2005 showing the New

95
Minimum Capital Requirements) Foreign currency shortages aside, according to
Friberg and Loven (2007) relative size would affect the willingness of the parent firm
to provide additional assets in order to keep the affiliate from bankruptcy during a
start-up period when investments are high compared to revenues. On the other hand,
the limitations in terms of foreign currency outflows may have forced Zimbabwean
banks to settle for entry modes they did not prefer. The study establishes that RFHL
for instance only went into a Greenfield in Uganda after a bid for an acquisition had
failed and this seems to be consistent with Meyer and Estrin (1999)’s argument that
resources that a firm possesses determine whether it is pursuing an internal growth
strategy via greenfield operations, or an external growth strategy through acquisitions.
The CEO of ABC, which is perhaps bank with the greatest experience in cross border
banking, warns that “going Greenfield in a market in which you really are perhaps the
smallest player, is not easy at all.” The study also reveals that despite meeting
minimum capital requirements Kingdom Bank Africa Limited, ReNaissance Capital
Limited, Zimbank Botswana Limited and ABC were undercapitalized from the onset
but there was little that could be done due to the precarious foreign currency situation
in Zimbabwe.

According to the Reserve Bank of Zimbabwe (2006)’s synopsis of the major causes of
the problems experienced by the banking sector in 2004 and 2005, rapid expansion
features prominently. “Rapid and ill-planned expansion drives which were not
synchronised with the overall strategic initiatives of the institutions concerned
exposed some institutions to greater risk of loss. Consequently, the capital base of
these institutions could not sustain the excessive expansion programmes. In a few
cases, the rapid expansion was funded by depositors’ funds as opposed to equity”.
According to the Reserve Bank of Zimbabwe (2006), Barbican was requested to
curtail its local, regional and international expansion programs. Trust Holdings
Limited and Century Bank Limited were similarly forced to abandon their regional
operations as part of the conditionalities for liquidity support. This imprudent
behaviour by Zimbabwean banks does not recognise submissions by Zhao and
Decker (2004) that organizational strategy, organizational structure and environment
are in close relationship; good matching between environment and organizational
strategy and structure is positively related to performance.

96
Douglas Munatsi, the Chief Executive Officer of ABC once said, “One of the things
that we have decided is that we will never ever start a bank without US$10 million in
capital… because you really have to stand on the strength of your brand and the
strength of your capital. Starting a business with a US$2 million capital like we did is
just untenable, especially if it’s compounded by the Zimbabwe contagion. Capital is
you last line of defence, if you are weak on your last line of defence, you don’t have a
defence at all.” Considering ABC’S vast experience in at least six countries over
seven years, this decision must be an informed one and for the purposes of this
research the amount of US$10 million can perhaps be used as a research. All initial
capital injected in regional projects by Zimbabwean banks falls way below this
amount, and this may have negative implications on their success in future. The
Reserve Bank confirms that it has been approached by some banks to increase their
capital. At the time of this study, ZB FHL was considering initiatives to recapitalise
its Zambian subsidiary.

5.2.5 Timing of Cross Border Investments & International Experience

All the respondents (100%) from banks agreed that moving early into a foreign
market is a competitive action that potentially leads to first mover advantages in
relation to home country rivals. A clear link is therefore established between the
timing and the performance of cross border investments. This is amply demonstrated
by ABC, which, apart after Finhold, was the first to move into the region. After close
to 7 years in the regional markets, ABC has built a track record and the success of its
massive capital raising activities in the past two years and its footprint in 9 countries
bear testimony to the massive gap between it and its peers such as KFHL, RFHL and
ZB FHL. Blandon (1999) argues that pioneers tend to maintain market share
advantages over later entrants and Makino & Delios (2003) agree that entry order,
being a first, early or late mover into a market, has important consequences for a
firm’s performance in its domestic and international markets.

According to Evans (2002), ABC has gained international experience, measured in

terms of the number of years operating in foreign markets and the number of foreign
markets in which the firm currently operates. Blandon (1999) concurs and uses the
number of countries where the bank has branches or fully owned subsidiaries as a
measure of its foreign experience. Blomstermo et al (2006) submit that as firms gain

97
experience, they gain confidence and a better estimate of risks and opportunities.
Blandon (1999) agrees that international experience is an important source of
ownership advantage as this experience will provide the bank with a skill to adapt
operations in different environments with relatively low cost.

Respondents said that in timing cross-border investments, their organisations mainly

considered the issue of first mover advantage; availability of capital, the economic
and regulatory environment and the urgent need to diversify country risk and sources
of income given the pressing economic problems in Zimbabwe as well as the presence
of unmet needs in the financial services sector and the growth stage of the foreign
market. The maturity stage of both the parent company and the home market was also
sighted as a consideration in the timing of cross border investments.

98
CHAPTER 6.0: CONCLUSION

6.1 Introduction
The chapter wraps up the research by highlighting the identified gaps and
acknowledging the positive developments and areas of further research turned up by
the findings. The chapter also discusses whether the hypothesis has been disproved or
proved in the context of the research findings.

6.2 Gaps and Hypothesized Relationships

6.2.1 Choice of Entry Mode and Performance
The study established that the majority of cross-border investments made by
Zimbabwean banks utilised the greenfield entry mode while the rest were in the form
of acquisitions. Due to the peculiar circumstances in Zimbabwe whereby the failure of
some of these regional investments was due to the problems in the banking industry in
Zimbabwe in 2003/2004 that claimed their parents, the effect of entry mode on the
performance of these investments could not be determined. This study was therefore
not able to establish a clear positive relationship between greenfield investments and
poor performance. The dilution of KFHL’s shareholding in KBAL from 100% to
35% and KFHL’s decision to relinquish its 25% stake in Investrust Zambia, however
indicate that the choice of entry mode depends on the circumstances and sometimes it
might be necessary to change the entry mode in order to achieve success. A review
of the literature on choice of entry mode overwhelmingly points to a positive
relationship between entry mode and performance. The hypothesised positive
relationship between choice of entry mode and performance of cross border
investments is therefore supported.

6.2.2 Cultural Distance, Entry Mode and Performance

The study established that Zimbabwean banks encountered cultural differences upon
entering regional markets, resulting in challenges in terms of acceptance,
implementation and effectiveness of management practices in host countries. On the
other hand the tendency of cross-border banking movements to occur first between
countries with similar cultural similarities was noted. The study does not establish a
direct positive relationship between cultural distance and entry mode but establishes
that cultural distance is a factor to be considered when entry mode decision is being

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made, though it is not a determinative one, hence it should not be an obstacle to
entering into a potential market with the right mode. A relationship is established
between cultural distance and performance in the short run but this difference is in
fact not sustained in the long run, hence cultural distance appears to become less
important after a number of years in the host country. The improving performance of
ABC already referred to bears testimony to this fact. The hypothesised positive
relationship between the cultural distance and entry mode is not supported while the
hypothesised relationship between cultural distance and performance is supported.

6.2.3 Regulatory Controls

The study established that regulatory controls in the form of home country exchange
controls were a constraining factor to the cross border investment activities of
Zimbabwean banks, yet the banks did not face similar challenges in the host
countries, which apparently have liberalised exchange controls. The study established
that Zimbabwean banks were attracted to countries with less or no Exchange Controls
such as Uganda, Botswana, Mozambique, Tanzania and Zambia because according to
Lai (2001) international investors attach great importance to the predictability,
transparency, accountability of the policy regime and the quality of legal and judicial
systems in the host country and according to Naaborg (2007)’s assertion that foreign
banks prefer to invest in countries with fewer regulatory restrictions.

The study also established that the Reserve Bank has no defined framework for
measuring the performance of cross-border investments. This may have contributed to
the failure of some cross-border investments such as Barbican Holdings (Pty) Limited
(South Africa) as poor performance could have been picked up earlier and pre-
emptive action taken to either cut losses by closing operations altogether or correcting
any challenges that would have been identified. The hypothesised negative
relationship between regulatory controls in the form of exchange controls and
performance is therefore supported.

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6.2.4 Capitalisation
The study established that capitalisation was a major challenge for all banks that
embarked on cross border investments. The inability of the banks to recapitalise their
regional operations due to foreign currency constraints in Zimbabwe and due to their
own relative weakness in terms of capital led either to a takeover in the case of
Zimbank Botswana Limited, a dilution in the case of KBAL and outright closure in
the case of Barbican Holdings Limited (South Africa) and Century Bank
International. Most of the investments were undercapitalised from the onset and this
caused a severe strain on their viability and ultimately their very existence. The
hypothesised positive relationship between capitalisation and performance is
therefore supported.

6.2.5 Timing
The study established that moving early into a foreign market is a competitive action
that has important consequences for a firm’s performance in its domestic and
international markets. The timing of cross border investments is therefore critical to
their performance as pioneers tend to maintain market share advantages over later
entrants. The early entrant such as ABC also has a competitive advantage in terms
of international experience, which helps it to gain confidence hence a better estimate
of risks and opportunities as well as the skill to adapt operations in different
environments at relatively low cost. The hypothesized positive relationship between
the timing of cross border investments and their performance is therefore supported.

6.2.5 Hypothesis
The hypothesised relationships among the concepts of entry mode, cultural distance,
regulatory/exchange controls, capitalisation and timing on the one hand, and
performance of cross border investments are supported, therefore the hypothesis for
this research has been proved.

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6.3 Areas of further research
The results of this research were not entirely conclusive in terms of establishing a
clear link between the entry mode chosen and the success or failure of the
investment. While acknowledging that the success or failure of an investment may not
necessarily be attributed to a single factor, it would be interesting to find out why the
majority of the investments were Greenfield, so that this may guide future
investments. Another area of interest might be the cost implication of the entry mode
chosen. According to ABC’s Annual Report (2006) the cost to income ratio of ABC
for instance was quite high (See Figure 5 below) against their short-term target of
50% and the long-term target of 40%. Was this related to their dominant acquisitive
entry mode? It would be interesting to take this issue further and investigate the cost
structure of cross border investments as soaring costs were also an issue of concern to
ZB FHL‘s Intermarket Banking Corporation in Zambia and KFHL’s First Discount
House in Malawi.

Figure 5: Cost to Income ratios of ABC 2002 -2006

Cost to Income ratio (%)

80

60

40

20

0
2002 2003 2004 2005 2006
Year

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7.0 RECOMMENDATIONS
7.1 Introduction
In this chapter, the author makes recommendations on the gaps identified by the

research in an attempt to answer the research questions. The chapter also

acknowledges efforts already under way to address some of the gaps as well as the

positive issues arsing from cross border investments. The limitations and constraints

to the implementation of those recommendations are also discussed and where

applicable suggestions are made about how to overcome them.

7.2 The Reserve Bank of Zimbabwe should put in place clearly defined evaluation
criteria specifically for measuring the performance of cross border investments
so that the review process is more efficient. Currently no such framework is in
place and this was confirmed by the respondents from the Reserve Bank
questionnaire who while unanimously agreeing on dividend remittances and
payback period as measures of the performance of cross border investments,
were not entirely unanimous in their responses. The exchange control
guidelines/requirements for cross border investments should also be drafted
circulated to all banks, so that they are fully aware of the approval
requirements.
7.3 In order to improve regulatory oversight on cross border investments and to
bolster its response to regulatory challenges that may be faced by these
investments in other jurisdictions, the Reserve Bank of Zimbabwe must
strengthen its on-site monitoring capacity. This can be achieved by making at
least one annual examination, as is the case with the local banks. It is
acknowledged that the Reserve Bank of Zimbabwe relies on the reports by the
regulatory authorities in the host country but it is noteworthy that the
regulatory regimes in most of the regional countries are less stringent than
those of Zimbabwe due to the absence of Exchange Controls.
7.4 The study established that in almost all cases, when cross border investments
commenced operations, they met minimum capital requirements but which
were not sufficient to drive business growth. The Reserve Bank of Zimbabwe

103
 must cooperate closely with regulatory authorities from other regional
countries in this respect and make it a condition of the approval of these
investments that they should raise additional specific amounts of capital within
a prescribed period of time of commencement of operations.

7.5 The Reserve Bank must not approve new cross border investments to be funded
from Zimbabwe if it can be proved that existing foreign operations are not
adequately capitalised. Efforts should be made to ensure that such foreign
operations are adequately capitalised first.

7.6 Given the current constrained foreign currency situation in Zimbabwe, the
Exchange Control authorities should consider allowing local financial
institutions to, if they have the means to do so, borrow offshore in order to
fund their cross border investments, or where possible, seek strategic partners.
A good example of a strategic alliance enabling a bank to capitalise itself
adequately is that of ABC and the IFC resulting in a capital injection of
USD20 million. Local banks with cross border investments are urged to
relinquish part of their shareholding to raise capital and grow the business.

7.7 The study points to the restrictive nature of exchange controls and their
reputation for frustrating foreign direct investment. Consensus may advocate
their abolishment but the situation on the ground in Zimbabwe characterised
by lack of balance of payment support suggests otherwise. The author
therefore recommends that the Reserve Bank of Zimbabwe adopts a phased
and gradual approach to relaxation of exchange controls in order to attract
foreign direct investment and reduce the current capital account deficit.

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8.0 IMPLEMENTATION ISSUES

In making the recommendations raised in the previous chapter, the author is keenly
aware of the fact that most of them have got policy implications, such as the
tightening or relaxation of current exchange control regulations. It is therefore beyond
the scope of this report to prescribe timetables and budgets on issues for which neither
it nor its author are in control of. However, the author is also aware that the apparent
under-performance of cross border investments by Zimbabwean banks is cause for
concern for the regulator and banks alike. The author will therefore avail this report
to selected senior people from the Reserve Bank of Zimbabwe, who took part in the
survey and contributed to its success in the hope that they will find some merit in
some of the recommendations, adopt them and implement them judiciously.

For those banks who have only recently embarked on cross border investments or
those that are contemplating such a move, this report presents an opportunity to tap
into the experiences of the likes of ABC, ZB FHL, RFHL and KFHL in order to
inform and shape future engagements in regional markets. The author will therefore
also avail the report to selected respondents from banks who took part in the survey,
including the Head of International Operations at ReNaissance Financial Holdings
Limited, where the author is employed, in the hope that the findings of this study will
inform RFHL’s expansion strategies and ensure that it does not repeat the mistakes
that have already been made by its peers.

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8.0 REFERENCES

9.1 BOOKS

1. FISHER, C., (2004). Guide to researching and writing a masters dissertation.

Nottingham: Nottingham Business School.

2. GILL, J., and JOHNSON, P., (1997). Research Methods for Managers. 2nd
Edition. London: Paul Chapman.

3. MWEGA, F., M., (2002). Financial Sector Reform in Eastern and Southern
Africa. IDRC Books.

4. NAABORG, I., (2007). Foreign Bank Entry and Performance with a focus on
Central and Eastern Europe. Eburon Academic Publishers

5. RICHARDSON, C., (2004). The Collapse of Zimbabwe in the Wake of the

2000/2003 Land Reforms. North Carolina: Edwin Mellen Press

6. SAUNDERS, M., LEWIS, P., and THORNHILL, A. (2000) Research Methods

for Business Students. 2nd Edition. Harlow: Pearson Education

9.2 ARTICLES AND COMPANY REPORTS

7. AFRICAN BANKING CORPORATION (2007). Notice of Extraordinary

General Meeting.

8. AFRICAN BANKING CORPORATION (2007). Unaudited Group Results for

the Six Months ending 30 June 2007.

9. BANK FOR INTERNATIONAL SETTLEMENTS (2004). Foreign direct

investment in the financial sector of emerging market economies. Basel.

10. BERGER, N., A., DEYOUNG, R., GENAY, H., and UDELL, F., G., (2000).
Globalisation of Financial Institutions: Evidence from Cross-Border
Performance. The Brookings Institute.

11. BLANDON, J., G., (1999). The timing of foreign direct investment under
uncertainty: evidence from the Spanish banking sector.

12. BLOMSTERMO, A., DEO SHARMA, and SALLIS, J., (2006). Choice of
foreign market entry mode in service firms. International Marketing Review,
23/2 (2006) 211-22.

13. BOTSWANA IFSC (2006). African Banking Corporation (ABC) has secured
a capital injection of US$20 million to boost its already expanding regional
business. [Online] Available at

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 http://www.botswanaifsc.com/news/african_banking.html [Accessed 24 February
2007]

14. BUCKLEY, P., J, and CASSON, M., (1981). The Optimal Timing of a Foreign
Direct Investment. The Economic Journal, 91/361 (1981), 75-87.

15. CARDENAS, J., GRAF, J., P., and O’DOGHERTY, P., (2003). Foreign banks
entry in emerging market economies: a host country perspective.

16. DENISON, T., and MCDONALD, M., (1995). The Role of Marketing Past,
Present and Future. Journal of Marketing Practice: Applied Marketing Science,
1/1 54-76

17. EVANS, J., (2002). Internal determinant of Foreign Market Entry Strategy.
Manchester Metropolitan University Business School. [Online]. Available at
http://130.195.95.71:8081/WWW/ANZMAC2001/anzmac/AUTHORS/pdfs/Evans1.pdf.
[Accessed 4 July 2007]

18. DUNN, R., (2002). The misguided attraction of foreign exchange controls –
Reforming Globalisation. [Online]. Available at
http://findarticles.com/p/articles/mi_m1093/is_5_45/ai_91659837/print [Accessed
14 November 2005]

19. FRIBERG, C., and G., LOVEN (2007). Working Paper: Entry Mode Strategy
and the Effect of National Culture on Foreign Subsidiary Performance. ITPS
Swedish Institute for Growth Policy Studies.

20. GOLDBERG, L., S., (2007). Financials Sector FDI and Host Countries: New
and Old Lessons. New York: FRBNY Economic Policy Review, March 2007.

21. HARVEY, C., (1996a). Banking Policy in Botswana: Orthodox But Untypical.
Institute of Development Studies Working Paper Series –39

22. HARVEY, C., (1996b). Limited Impact of Financial Sector Reforms in

Zimbabwe. Institute of Development Studies Working Paper Series –36.

23. INVESTOPEDIA (2007). Acquisition Indigestation. [Online] Available at

http://www.investopedia.com/terms/a/acquisition_indigestation.htm [Accessed on
2 July 2007]

24. JENKINS, C., and THOMAS, C., (2002). Foreign Direct Investment in
Southern Africa: Determinants, Characteristics and Implications for
Economic Growth and Poverty Alleviation.

25. KAMER, P., M., (2004). The role of Capital Account Controls in Developing
Countries: Lessons from Malaysia. Cross Cultural Management. 11/4, 91-104.

26. KAYAWE, T., & AMUSA, A., (2003). Concentration in Botswana’s Banking
Sector. South African Journal of Economic and Management Sciences, 6/4
(2003), 823 –847

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27. KESSAPIDOU, S., and VARSAKELIS, N., C., (2002). The impact of national
culture on business performance: the case of foreign firms in Greece.
European Business Review 14/4, 268 – 275

28. KFHL (2005). Notice to shareholders, Clients and All Stakeholders.13th

September 2005.

29. KHOR, M., (1998). Malaysia institutes radical exchange, capital controls.
[Online] Available at http://www.twnside.org.sg/title/radical-cn.htm [Accessed 14
November 2005]

30. KINGDOM MARKET NEWS (2005). Going Memory Lane. [Online] Available
at http://www.kingsec.co.zw/markets_news_view_archive.asp? NewsID=71.
[Accessed on 12 August 2007.]

31. LAI, J., (2001) International Investment in Africa: Trends and Opportunities.
African Development Bank.

32. LEITH, J., C., (1998). The Design of Policy Frameworks and the Role of the
Policy Advisor. University of Western Ontario.

33. MAKINO, S., & DELIOS, A., (2003). Bunched Foreign Market Entry:
Competition and Imitation Among Japanese Firms, 1980 – 1998.

34. MANNING, P., L., (2002). Banking Redefined-How Supperregional

Powerhouses are Reshaping Financial Services (Incorporating A Case Study
on African Banking Corporation. [Online] Available at http://www.paul-
manning.com/fin2061.htm [Accessed 24 February 2007]

35. MARRS, D., (2005). Scrap Remaining Forex Controls, Says Mboweni.
[Online] Available at http://allafrica.com/stories/printable/200511100171.html
[Accessed 14 November 2005]

36. MEYER, K., and ESTRIN, S., (1999). Entry Mode Choice in Emerging
Markets: Greenfield, Acquisition and Brownfield. Centre for East European
Studies, Copenhagen Business School.

37. MOSKOW, M., H., (2006). Cross-Border Banking: Forces Driving Change
and Resulting Regulatory Challenges. Chicago: Federal Reserve Bank of
Chicago

38. PENNINGS, E., and SLEUWAEGEN, L., (2004). The choice and timing of
foreign direct investment under uncertainty. Economic Modeling. 21 (2004),
1101-1115

39. RENAISSANCE FINANCIAL HOLDINGS LIMITED (2007). Unaudited

Financial Statements for the half year ended 30 June 2007.

40. RESERVE BANK OF ZIMBABWE (2002). Bank Supervision Annual Report.

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41. RESERVE BANK OF ZIMBABWE (2004). Directive RE: 259 - New Cross
Border Investment Proposals. 26 April 2004.

42. RESERVE BANK OF ZIMBABWE (2005). Bank Licensing, Supervision &

Surveillance (BLSS) Annual Report.

43. RESERVE BANK OF ZIMBABWE (2005). The 2005 Post-Elections and

Drought Mitigating Monetary Policy Framework.

44. RESERVE BANK OF ZIMBABWE (2006): The Collapse of Barbican Bank

Limited: The Untold Story – Supplement to the First Half 2006 Monetary
Review Statement, 31 July 2006.

45. RESERVE BANK OF ZIMBABWE (2007). The 2006 Year-End Monetary

Policy Statement.

46. STANBIC BANK ZIMBABWE LIMITED (2007). Unaudited Financial

Statements for the half-year ended 30 June 2007.

47. UNITED NATIONS (2004). An Investment Guide to Uganda. New York and
Geneva: United Nations.

48. ZB FINANCIAL HOLDINGS LIMITED (2007). Unaudited results for the half-
year ended 30 June 2007.

49. ZHAO, X., and DECKER, R., (2007). Choice of Foreign Market Entry Mode:
Cognitions from Empirical and Theoretical Studies. University of Bielfeld

9.3 NEWSPAPER ARTICLES

50. THE EAST AFRICAN (2007). Only 38% of Ugandans save, borrow money.
August 2007

51. THE HERALD (2005). Zim economy over banked? 17 March 2005.

52. THE HERALD (2006). KFHL follows a firm growth path. 2006.

53. THE HERALD (2006). Easy as ABC: the next big step. 21-27 September 2006.

54. THE HERALD (2006). Kingdom Botswana deal yet to get nod. 5 October 2006.

55. THE HERALD (2007.Kamushinda Empire expands to Namibia. 26 April

2007.

56. THE HERALD (2007). ZB to recapitalise Zambian subsidiary. 4 July 2007.

57. THE HERALD (2007). Trust seeks to dispose of shares in 3 subsidiaries. 19

July 2007.

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58. THE FINANCIAL GAZETTE (2004). Kingdom ends flirtation with Zambia’s
Investrust. 18 March 2004.

59. THE FINANCIAL GAZETTE (2006). Zim move would set Econet back 10
years. 3-9 August 2006.

60. THE FINANCIAL GAZETTE (2006). Kingdom eyes Malawi buy. 19-25
October 2006

61. THE STANDARD (2006). USD20m shot in the arm for ABC regional
banking. The Standard, 26 August 2006.

62. THE STANDARD (2006). Kingdom ups stake in Malawi Company. 26

November 2006.

63. THE ZIMBABWE INDEPENDENT (2006). ABC celebrates doing business in

Africa. The Zimbabwe Independent, 21 – 27 July 2006.

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