The 2014 EY Africa Attractiveness Survey shows increased foreign direct investment in the continent with Africa’s perceived attractiveness improving dramatically over the past few years. However, Africa is still a challenging and uncertain place to do business. In its report, EY identifies critical factors for effective strategy execution based on its own experiences of expanding and integrating its practice across 33 countries on the continent. [hidepost=9] [/hidepost]
Here are EY’s seven Ps for successful execution of growth strategies in Africa.
EY warns that sluggish growth in other markets is not reason enough to pursue an African growth strategy. The process can be a complex and challenging task and should not be undertaken lightly. The report explains that before thinking about the “how” of growing in Africa, it is critical to first clearly answer “why”.
The report cites the case of multinational teleco Bharti Airtel which expanded to Africa in 2010, acquiring operations in 17 countries. At the time, Airtel’s core business in India was maturing and after a comprehensive global scan, it decided African markets were best suited to its business model.
British explorer Tullow Oil’s growth strategy is increasingly focused on Africa where vast tracts of underexplored and high-potential territory offer immense opportunity. The company has 54 licences across 15 countries in Africa and an average drilling success rate of over 70% in the continent, which is more than double the global industry average.
“[Tullow Oil] is very clear that its competitive advantage is built on industry-leading exploration capabilities. As a result, it has been able to go into remote territories that others may not have considered, and has had the confidence to invest billions of dollars in drilling activities [in Africa].”
Africa is a vast continent of 54 countries, making it critical to make well-informed choices about which markets to enter, when and via which mode. EY explains that most organisations seeing success in Africa have managed to strike a balance between careful planning and adaptability to local conditions, as well as being clear on what is flexible and what is non-negotiable.
The report also notes that a regional shared services centre can be an important enabler of planning and effective strategic execution. For instance, pan-African banking conglomerate Ecobank Transnational, which has operations in more than 30 countries in Africa, has created three IT hubs and three call centres to ensure brand consistency and common systems and processes.
Despite its potential, Africa is still a risky place to do business and there is lack of scale in many individual markets. Having a sizable African portfolio provides critical advantages including reducing the risk of political or economic instability in any one country affecting overall earnings.
It can also allow companies an early mover advantage in markets that are still at an early stage of development and can provide sufficient scale to make the African portfolio large enough to matter.
“We can guarantee that there will be volatility, uncertainty and many challenges, perhaps even failures. So it is important to balance risk across a number of different markets.”
Tullow Oil drills more wells in Africa than any other oil company. EY shows that in Uganda alone Tullow has drilled more than 50 wells since 2006.
“This is partly what has enabled Tullow Oil to make by far the most new oil discoveries in Africa in recent years. Having sufficient projects at later stages of development also means that these can be monetised to fund ongoing exploration. For example, production in Ghana will generate ongoing revenue for reinvestment, while the sale of a share of its rights in Uganda (preproduction) provided an immediate US$2.9bn capital boost.”
People are key to the execution of strategies, yet for many companies expanding to Africa a shortage of skills is a major stumbling block, particularly in specialised technical fields.
Ironically, the continent has an abundance of latent talent. EY advises that finding, training, retaining and supporting good people, in particular local staff, is critical for organisations operating in Africa.
The report cites the case of mail and logistics services group DHL which has tapped into Africa’s enormous human potential by developing the skills of its people across the continent. It also describes American multinational technology corporation IBM’s strategy of using expatriates to accelerate the process of embedding its values and culture as it enters new countries and hires new staff.
Multinational conglomerate General Electric is seeking to create a critical mass of African leaders across its Africa business through its Early Career Development Program (ECDP). The ECDP is a 12-month leadership programme designed to give recent university graduates challenging work assignments, training and leadership experience. So far 150 Africans have participated in the ECDP.