BY NELLY NYAGAH, 29 MARCH 2012
Article from All Africa
Despite global economic conditions, Africa's growth is escalating and drawing attention from more international investors who are seeking growth in emerging and frontier markets. What must companies take into consideration when developing an approach to leverage investment opportunities in on the continent? Hendrik Malan, the operations director for Africa at Frost & Sullivan offers insight.
What is the size of your canvas?
Understanding the market size and structure before you enter the market is critical to developing a proper approach. To ensure that you do not over-extend yourself or under-invest, you have to match the addressable opportunity with the time frame to take advantage of this; understanding market size and structure is critical. Let the opportunity guide the options for entry and the market resources you are willing to commit to that market. It is all about return on investment. You will be surprised how many companies make entry decisions based on existing relationships, for instance, following their clients. Geographic expansion is an expensive exercise, and you need to invest time and money in the markets that will provide you with the biggest returns in the long run.
Are we there yet?
Plan for a slow ramp up. Given the operational challenges of Africa, gaining access to addressable opportunity typically takes longer than expected; take this into account when calculating the return on investment on your market entry model. Do not go Texas on Africa - she will push back hard and fast. Allow your teams to learn because it takes time in Africa; if your burn rate is too high, you will go down in flames. Also from an evaluation perspective, take a long-term view to the profitability of operations in Africa. We typically recommend 5-10 years. Individual countries can drop off for periods of time. For instance, Kenya's disputed election results a few years ago. It will be business as usual in a couple of years, so do not pull out! However, be prepared to put the business 'on hold' or 'on maintenance mode' for a while.
It's not an arm's length affair
Get boots on the ground. Learning through third parties takes too long and is not an effective market feedback mechanism. You could be growing at 6% (which you will most likely be very happy with) and the market can be growing at 20%.
To compete like a local, you have to be a local
Invest in local talent. Understanding the cultural nuances of management and selling in foreign markets will remain a challenge for expatriates. Follow an aggressive plan to scale-up local talent to take up other operations within three years.
The big G
If you are a significant market player, government involvement is a given. Governments often play a strong role in large deals. They bring a unique ability to coordinate multiple suppliers across industries, secure financing, and strike long-term deals all at once.
We have to do what...?
Be creative in your business model and - entertain non-standard ones for your company and even for your industry. Even though your core value proposition should never change based on the market you enter, the way of delivering it will need to change. One size will definitely not fit all. You might have to look up and/or down the value chain to establish a sustainable business model, which could involve developing new service models and addressing new packaging requirements.
I know people who know people
Relationships are everything. Stress test the strength of partner's and supplier's relationships before entering into any agreement. The wrong partner selection can easily cost you three years' worth of business, and more importantly three years of effective learning. Also know your deal life cycle extremely well - know when, where and by whom the real decisions are made about contract allocations; map decision-makers, influencers and gatekeepers across the deal lifecycle. This will help guide the activity of senior executives in the region, and who and where to spend their time on.
Conclusion
1. There is a significant gap between actual and perceived risk in Africa - this spells opportunity.
2. Despite the low base, the growth experienced by the continent is attractive and it appears to be more sustainable than in the past.
3. This new 'African Story' is driven by consumption, a growing middle class, urbanisation and strong infrastructure needs.
4. The African Renaissance is not yet here, but the writing is on the wall.
5. You will have to be well entrenched by the time this hits to be able to capitalise on it. Generally, there is a strong loyalty to successful 'first movers'.
6. The paradigm is shifting from 'should we invest in Africa' to 'managing risks of not being in Africa'.
Malan has a wealth of experience in designing and implementing growth approaches across Africa for top global companies. He spoke on Wednesday during a Webinar titled "Africa - The new growth frontier?" and hosted by professional services firm, Frost & Sullivan in Cape Town.
Article from All Africa