Africa, with a number of countries seeing considerable growth in GDP, is increasingly spoken about in mainstream media as a destination for investors and multinational companies. For consumer-facing companies, the continent’s urbanising population and growing consumer spending power is an attractive drawcard. [hidepost=9] [/hidepost]
According to Sarah Boumphrey, head of countries and consumers research at Euromonitor International, sub-Saharan Africa is home to 12% of the world’s population. Furthermore, 20% of the world’s youth aged between 0-14 years live in sub-Saharan Africa.
However, the continent has 54 diverse countries, each with its own unique set of challenges, and it has been repeatedly said by investors interviewed by How we made it in Africa that companies cannot copy and paste their business model from elsewhere in the world into Africa. The environments are just too diverse, and operating in Africa requires different strategies to doing business in Europe or the US, for example.
In a video interview, Boumphrey highlighted a number of strategies that foreign multinational companies should consider for market success in Africa.
“Sub-Saharan Africa is a complex and fragmented market, but there are a minimum of seven strategies to success that any business should consider,” she said.
1. Do your research before entering the market
“First of all, gaining a thorough understanding of the market is crucial, and this includes understanding your competitors, suppliers, consumers and the operating environment,” highlighted Boumphrey.
Hakeem Ogunniran, managing director at UPDC, a property development company in the residential and commercial real estate markets of Nigeria, told How we made it in Africa that it was important for global companies entering Nigeria to spend some time in the country first to get to know the market.
“I think that is why South African companies are more successful in Africa than European companies. European companies listen to CNN, and they do beautiful analyses in their office in Europe to make decisions. For Shoprite (a South African-based food retailer), they leave Johannesburg and go to Nigeria to see everything themselves,” said Ogunniran.
2. Design products for Africa
“Secondly, design appropriate products, not cheap products,” advised Boumphrey.
“So Samsung, for instance, has a built-for-Africa range of products which includes a mobile phone with dual sim capability so that consumers can switch sims to get a better signal.”
3. Have your own logistics division
Many African countries lack quality logistics and transport infrastructure.
“Distribution is a major challenge so many companies take care of their own logistics,” said Boumphrey. “PZ Cussons, the UK-based consumer goods company which is extremely successful in Africa, attributes a large part of the success to its wide network of depots and factories.”
4. Look at a payment strategy
“Think carefully about [payment] strategy because many consumers are unbanked,” she continued.
For example, Boumphrey pointed out that internet-based companies such as retailer Jumia are successful in Nigeria as it offers options such as pay on delivery, where consumers can also pay in cash. Tunde Kehinde, co founder of Jumia Nigeria, told How we made it in Africa the strategy was also employed because the company faced the challenge of getting Nigerians to trust the use of online credit card payments.
5. Think about pricing strategies
“A pricing strategy is also crucial,” said Boumphrey. “Income inequality is massive across the region, with average per capita spending in Burundi coming in at around US$175 per capita, compared to over $9,000 in the Seychelles.”
6. Educating your consumers should be a marketing strategy
“Branding and advertising strategies are crucial and often have to go hand in hand as education,” suggested Boumphrey. “Unilever, through its Lifebuoy soap brand, has managed to do this through launching a hand washing campaign across emerging markets, including Africa.”
7. Partner with local companies
“And finally, thinking about market strategy, partnering with local companies is also crucial,” she added.
This strategy has been by far the most widely cited by investors and heads of multinational companies operating in Africa. Partnering with a local firm can be hugely helpful towards a company’s expansion into an African country as local partners can provide insight into the local consumer behaviour, have the valuable local networks in place for business, and have the operating or legislative know-how.
For example, Fusion Capital is a business financing and private equity house with a focus on the East African market. Mwijage Bishota, executive director and head of Fusion Capital’s Tanzanian operations, told How we made it in Africa that the approval process in the real estate market in Tanzania can be typically tedious. However, he said a way his firm usually mitigates this difficulty is by working with established local businesses, such as architectural companies, which can help to quicken the process. “Because they have been in the market for some time they have got that understanding [and] they have built the relationships within the various approving institutions.”
“Many companies thinking of entering the region for the first time or enlarging their footprint could do a lot worse than learning from others,” concluded Boumphrey.