The rise of emerging market competitors in sub-Saharan Africa

Across industries, emerging markets-based companies are entering sub-Saharan Africa at a faster rate than Western companies, gaining critical market share and customer loyalty. Underestimating the threat emerging markets-based companies pose, Western multinationals are not yet concerned at their own peril.

The number of foreign direct investment projects undertaken by emerging markets-based companies increased at a compound annual growth rate of 20.7% between 2007 and 2012, compared to 8.4% growth from developed countries’ companies during the same period. Companies headquartered in emerging markets grow 2.5 times faster than those based in developed markets when competing in emerging markets where neither of the companies is headquartered. Emerging markets-based companies are more flexible in allocating capital to new business opportunities and have growth-oriented, long-term business models. Emerging markets-based companies are also less risk averse.

Emerging markets-based companies target a more diverse group of countries and sectors

The main beneficiaries of global foreign direct investment are South Africa, Nigeria, Angola, Kenya, Ghana, Tanzania, Mozambique, Zambia and Mauritius, but data shows that investment is beginning to flow to a more diverse group of countries including Côte d’Ivoire and Cameroon. Contrary to the popular belief that the bulk of BRICS’ (Brazil, Russia, India, China and South Africa) investment in Africa goes into the natural resource sector, manufacturing and services accounted for 74.0% of the dollar value of foreign direct investment projects and 90.0% of total foreign direct investment projects in Africa between 2003 and 2012.

Emerging markets-based companies pose competitive threats to multinationals

Multinationals face competitive threats from emerging markets-based competitors that are expanding their footprint by entering into powerful joint ventures, setting up local manufacturing, tailoring products to local markets, and partnering with emerging markets governments to win government tenders.

Multinationals should implement defensive strategies to compete with emerging markets-based companies

Strategies should be preventive and tailored to specific threats from emerging markets-based competitors. For example competing on service rather than price, adapting the product portfolio to local preferences, or aligning commercial strategies to government objectives, such as job creation, to win contracts. Frontier Strategy Group’s new report, Dealing with Emerging-Market Competitors in Sub-Saharan Africa, highlights investment trends by emerging markets-based competitors and strategies companies should implement to compete with them.

Anna Rosenberg is senior analyst for sub-Saharan Africa at Frontier Strategy Group. Follow her on twitter