Foreign companies interested in doing business in Africa can learn a lot by looking at how The Coca-Cola Company is operating on the continent. Jaco Maritz reports[hidepost=9][/hidepost]
Multinationals cannot operate in Africa without ensuring that the communities in which they do business benefit and have a significant stake in those businesses, says Bill Egbe, president of The Coca-Cola Company’s South African unit.
Egbe was speaking during the recent Fortune/Time/CNN Global Forum in Cape Town. Prior to his current position, Egbe has worked for Coca-Cola in various capacities across Africa and has considerable insight in doing business on the continent.
“We have operations in every single country on the continent, even some that don’t have governments like Somalia and Somaliland. People sometimes ask, ‘how does that work?’ It works because you understand that you can create a business opportunity, and people can see beyond the politics to engage around the business opportunities. And the other reason why it works is because you engage local investors in those businesses. Those are the fundamentals of a sustainable business,” says Egbe.
As it does elsewhere in the world, Coca-Cola follows a franchising model in Africa. The company only produces a syrup concentrate, which it sells to bottlers who hold Coca-Cola franchises for one or more geographical areas. The bottlers produce the final drink by mixing the syrup with filtered water and sweeteners, and then carbonate it before putting it in cans and bottles, which the bottlers then sell and distribute.
Being successful in a continent like Africa, with poor infrastructure and many people living in rural areas, however, requires a degree of out-of-the-box thinking.
In many areas in Africa, Coca-Cola is distributed through so called manual distribution centres. “We had a problem in some urban areas in East Africa to begin with, where it was very difficult for our trucks to get through. The traditional distribution model couldn’t work,” William Asiko, public affairs and communication director for Coca-Cola Africa told The Africa Report.
“So the franchise owner at the time came up with the idea of setting up a small business that could cover this urban area, at a distance of 2-3 kilometres, and they would use whatever means possible to get to the retail outlets: pushcart, donkey-cart, bicycle – some would even be carried by hand. That was back in 1999. Since then the concept has gone international,” says Asiko.
According to Egbe, the reason why Coca-Cola’s operations in Africa are sustainable is because everyone involved in their business structure makes a reasonable amount of money. “It doesn’t make sense to want to try and keep all of the gains for yourself. You have a much more viable business system when you have partners along the value chain who have a vested interest in the long-term survival of your business because they derive a living from your business system. That is the ultimate formula for sustainability on the continent,” he says.
He adds that engaging the local population helps a business survive through difficult periods.
“Companies also [need to] understand that for them to have a licence to operate in Africa, they have to earn that licence, not from the governments, but from the consumers. And that licence means that you are doing things that support socio-economic development in Africa. It means that you have to invest in the communities in which you do business. On the African continent, if you are going to have a sustainable business, you have to make sure that you are an integral part of the community in which you do business,” Egbe explains.
Urbanisation and a growing middle class
Urbanisation in Africa is, however, making it a bit simpler for Coca-Cola franchisees to distribute their products. “Urbanisation is a huge factor in fast moving consumer goods because it makes access to consumers much easier for companies like ourselves,” says Egbe.
Africa’s growing middle class, and subsequent higher disposable incomes, is also allowing Coca-Cola to offer more and more consumers products that they can afford.
Dealing with the challenges
Egbe says that although most companies are starting to realise that it is possible to generate good returns on investment in Africa, people sometimes still get blinded by the challenges.
“I always say that those challenges are part of our reality. We don’t moan about them, we don’t complain about them. We take [the challenges] into account as we design our business models. Africans survive on this continent despite those challenges. There are fine ways to cope with those challenges. Businesses need to have a mindset that says: ‘We’ll build a business model that takes into account these challenges and build a system [to overcome the challenges]’,” he says.