Expanding into Africa?

Written by David Hendrie • Online since 15.09.2015 • Filed under Industry news • From Issue 2 - September 2015 - February 2016 page(s) 10-11
Expanding into Africa?

Why, or why not?

Your Africa growth initiative should begin by answering this question: ‘Why expand up into Africa?’ Why not the Americas, Europe or the East for example? David Hendrie, who has vast experience taking business up into Africa, shares his insights into what no-one tells you about Africa.

I begin my Africa Workshop sessions with some ‘mind focussing’ facts:

• People living on less than one dollar a day are some of the most discerning and loyal consumers on the planet.

• When you are living on the poverty line you cannot afford to make a mistake.

• Just three countries in West Africa have 225-million people, and in East Africa just four countries (all bordering each other) have 145-million people.

• Urban populations in Africa will triple by 2050 – creating more easy-to-reach target markets (versus

rural populations).

• One out of every five Africans is Nigerian.

• The middle class is exploding in growth.

I could go on. The numbers are staggering and to fully grasp the implications you have to ‘connect the dots’.

Exploding middle class equals demand for houses, which equals demand for cement, demand for appliances, and demand for power, etc.

Behind these very impressive statistics are a number of challenges facing companies and entrepreneurs looking to drive their businesses up into Africa. Not least of these include:

• Poor infrastructure

• Currency volatility

• Lots of red tape (watch trying to take short cuts – you will get burnt)

• Corruption (although not nearly as much as I first expected)

• Lack of good property close to city centres

• Getting money out (many companies reinvest for a number of years).

Learning the hard way

For Simba Pepsico, I was responsible for 33 countries in sub-Saharan Africa and learnt the hard way (on the dusty ground) some valuable lessons about doing business in Africa. Here are a few of the lessons I learnt, and call:

‘What no-one tells you about doing business in Africa’:

• Managing your Africa expansion strategy and execution is a full-time job if you want any chance of succeeding. Don’t let anyone tell you differently. It is not a tourist excursion. You have to get into the countries personally and frequently. I have always believed that your eyes don’t lie. You have to take them up into Africa to uncover what’s really happening.

• There are no quick wins in Africa – it usually takes very patient money before you see returns so you have to

put a stake into the ground and make a start.

• Because it takes patient money, you have to get the board to buy into your Africa strategy early in the initiative.

• You build your business street by street, block by block, and village by village.

• I learnt personally that my global brands that make millions of dollars in North America and Europe are

frequently unheard of in rural villages (where 70% of the populations live) and in the cities. A humbling

experience.

• South Africans are generally disliked throughout Africa because of our arrogance (and sporadic xenophobia

out-breaks). You have to work hard to overcome this but it is possible – I did it.

• If you have a strong internal value code of conduct it will be tested, frequently, when the issue of bribery

arises.

Expansion rationale

Your rationale might revolve around your successful experience in South Africa (very dangerous as I will explain later), or proximity from a logistics point of view (also very dangerous). The allure of expanding into Africa might centre on the large populations, or relatively high per capita GDPs, or stagnant growth in South Africa. Low barriers to entry, few or no competitors, government incentives, or a well-developed consumption habit already in place, may be part of your rationale to expand. Having laid out your expansion rationale there are a number of options to consider in your plan. Among them are:

• Export from South Africa or import from another country – I did both.

• Make locally or appoint a packer/assembler.

• Go it alone with a greenfield site, or negotiate a joint venture.

• A mix of the above?

Early wins

Are there any early wins to be had? Remember you have to keep your board or investors or bankers interested – Africa requires patient money! It’s very important to define the size of the prize with crystal clarity for all to buy into, and keep them off your back while you are getting on with the job. Also, one of the biggest challenges you will face is getting reliable, meaningful data to underpin your strategy, your feedback measurements, and your sensitivity analyses. Maybe I’m old school, but I regard country visits as invaluable (what your eyes tell you, networking, and speaking to people in the street). Obviously the internet is powerful, up to a point, and the CIA global website is, in my opinion, one of the very best for demographics, political background, and industry statistics. I once visited the public library in Addis Ababa, Ethiopia, to find a specific piece of information for an assignment I was working on. Local government agencies, consulates and shipping companies have also been very useful. On an individual skill-set level my personal opinion is that to be successful in your Africa expansion initiatives, you need a healthy dose of:

• Curiosity – never assume anything, Africa will surprise you.

• Humility – remember what I said about South African arrogance.

• Boundless energy – it’s hot, humid, often very dry, and a long way away.

• Relentless focus on the journey started.

I spend a lot of time in my Africa Workshops covering critical areas such selecting, managing and paying/ incentivising distributors/agents from 5 000+ km’s away, critical internal processes for your export department, currency management, logistics realities, preparing to travel (planning the business objectives, what to pack, and how to behave once you are up there), among other topics. In summary, there are five mistakes that I continually remind people to avoid when doing business in Africa:

1. Assuming Africa is one country – there are vast differences.

2. Assuming the consumers are all the same – even the experts fail here.

3. Not planning for the vast distances between markets.

4. Assuming that all of Africa is corrupt.

5. Assuming that your Africa expansion will be instantly profitable.

Good luck, and I hope to see you at my Africa Workshops.

David Hendrie specialises in supplier/retailer sales and marketing relationship strategy at Gateways Business Consultants. His experience covers 38 years in FMCG sales, marketing and logistics at four multinationals and includes 24 years as a main board director. He is passionate about negotiation, a subject that he loves to teach to both suppliers and retailers. For more information, call T +27 083 645 0088.

Issue 2 - September 2015 - February 2016

Issue 2 - September 2015 - February 2016

This article was featured on page 10-11 of SABI Magazine Issue 2 - September 2015 - February 2016 .

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