During a recent webcast Hendrik Malan, operations director for Africa at Frost & Sullivan, shared some practical tips on how to invest in the continent.
1. What is the size of the canvas you are painting on?
“Understanding the market size and structure before you enter the market is absolutely critical to develop an appropriate approach … Let the size of your market guide the options for entry and the amount of resources you are willing to commit to that market.
“It is all about return on investment obviously. You would be surprised by how many companies make entry decisions based on either existing relationships, ie following their clients, or just gut feel or based on a few business trips. Geographic expansion is an expensive exercise, and you need to invest your time and money in the markets which will provide you with the biggest return in the long-run.”
2. Take a longer-term view
“Plan for a slow ramp-up. Given the operational challenges of Africa, gaining access to opportunities typically takes longer than expected. Take this into account when calculating return on investment into your market entry model. Allow your teams to learn, because this takes time in Africa. Also from an evaluation perspective, take a longer-term view to the profitability of operations in Africa. We typically recommend five to ten years. The individual countries can drop off for periods at a time – look at Kenya a few years ago with the disputed election results. It will be business as usual in a couple of years, so don’t pull out, but be prepared to put the business on hold or on maintenance mode for a while.”
3. Get boots on the ground
“Learning purely through third parties takes too long and is not an effective market feedback mechanism. You could be growing at 6% … and the market could be growing at 20%. The lack of market intelligence will make an arm’s length approach very difficult to manage effectively.”
4. Invest in local talent
“Understanding the cultural nuances of managing and selling in foreign markets will remain a challenge for expats. Follow an aggressive plan to skill-up local talent to take over operations within three years.”
5. Work with governments
“If you are a significant market player, government involvement is a given. China has very successfully increased its presence in Africa through careful alignment of its own interests with the challenges African governments face. Governments often play a strong role in large deals. They bring a unique ability to coordinate multiple suppliers across industries, secure financing and strike longer-term deals all at once.”
6. Be flexible with your business model
“Be creative with your business model and entertain non-standard ones for your company and even for your industry. Even though your core value proposition should never change based on the market you enter, your way of delivering will need to change. One size will definitely not fit all. You might have to look up or down the value chain, develop new service models, or address new packaging requirements, etc. to establish a sustainable business model on the continent.”
7. Relationships are everything
“Stress test the strength of potential partners and suppliers relationships before entering into any kind of agreement. The wrong partner selection can cost you three years’ worth of business …
“Also know your deal lifecycle extremely well. Know when, where and by whom the real decisions are made … Map decision makers, influencers and gatekeepers across the deal lifecycle. This will also help guide the activity of senior executives in the region, ie how and with whom to spend their time. Kenya is a very good example. The country is ruled by approximately 50 families. If you do not align yourself with some of these influential families, the chances of landing significant contracts are extremely slim.”