Also, for the foreign multinational, such as AGCO, there are numerous other benefits for being part of a joint venture with a local partner in Africa. We benefit from the local partner’s knowledge about the country’s culture, language, political system, and business systems. Since a joint venture also entails a significant equity investment, both companies invest significant resources, talents, and commitment to the new firm. This provides both companies with advantages in terms of sharing development costs and risks.
Additionally, joint-ventures are less prone to being nationalised or being targeted as a foreign firm since the local company has a significant stake in the joint-venture as well. As such joint-ventures provide a good opportunity for firms to enter markets where otherwise they would not have been able to enter.
Explain some of the challenges that AGCO faces in Africa today and the plans to overcome them?
Any international company looking to invest and work in Africa needs to understand and plan mitigations for the following challenges:
- Political stability – Civil unrest, regime instability, economic hardship and corruption.
- Infrastructure status – What are the quality, connectivity and reliability of transport systems, roads, trains and ports? How reliable are power and water supplies?
- Quality and reliability of local manufacturing – Is there a local supply and manufacturing base of sufficient quality that we can leverage?
- Customer understanding – Do we have sufficient insight into local customers across all target segments of the population?
- Variety and complexity of routes to market – Do we know and understand how to get goods to market? Can we leverage an existing distribution network or will we need to innovate and build our own?
- Local talent – Are there local staff available with appropriate experience and language skills? To what extent will we need to deploy local staff from day one in order to comply with local requirements?
To overcome these types of challenges, it is imperative to conduct a thorough investigation and assessment of the risks posed by these challenges, and to develop mitigation strategies; and to working effectively with local partners and national/local government, to navigate your way through.
In terms of future expansion plans across the continent, what is the next step for AGCO?
By 2017 we want to more than double AGCO’s market share to 32%. Such an ambitious target will be expedited by growth drivers such as:
- Optimisation and extension of product portfolio
- Expanding and enhancing distribution networks
- New market entries, e.g. Algeria and Nigeria
- Expanding the Model Farms and Training Centres to other countries
Already we have opened a $35 million parts warehouse in Johannesburg in May, 2012; signed the deal with Algeria Tractors Co, and already producing Massey Ferguson tractors; and planning to build smaller parts distribution warehouses in East and West Africa.