Success factors for African expansion

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To imagine you can offer anything less than world-class products and service in Africa is naive and short-sighted. Companies should be laying down the best they have to offer from the outset with a view to establishing themselves as market leaders and setting industry benchmarks, writes Bruce Layzell, KFC general manager for new African markets.

Bruce Layzell

Bruce Layzell

African consumers are coming to expect world-class offerings and why shouldn’t they? Companies hoping to do business in Africa would do well to consider delivering world-class products, solutions and services from day one instead of assuming they can offer anything less.

Africa is hailed as one of the fastest growing regions globally. With consumer-facing industries in Africa expected to grow by more than $400-billion by 2020 (McKinsey Report, October 2012), many businesses are taking the first steps towards establishing themselves on the continent or, if already in Africa, to build sustainable business models and expand their footprints.

There has been a lot of talk about Africa’s potential but it is now time to turn this into sustainable profit. The McKinsey Report predicts more than half of a projected 130-million households in Africa will have discretionary spending by 2020. Businesses now need to figure out how to get the guy on the street in Lagos, Accra or Nairobi, who is now a little richer, to spend this money with them.

Two faces of Africa

Business must understand from the outset that there are two faces to Africa – firstly, there is the Africa that the McKinsey report refers to, the Africa which is full of opportunity, and then there is the Africa that is full of challenges. Before businesses look to tap into the opportunities, they need to plough their way through the multi-tiered challenges, ranging from the political and economic, to the societal and practical.

Some challenges are harder to address than others. Let’s take power supply as an example. It is not something that can be switched on overnight. It requires massive investment, needs significant long-term planning and it has lead times of years not months.

The big question is HOW to address the various challenges businesses face. Some solutions are within their ambit of control and others are not. Success lies in solving the challenges they have control over and finding ways of mitigating the factors they don’t have control over. In respect of power supply, this might mean using alternative power sources and fitting less power-hungry equipment.

Africa is a continent, not a country

Too often, the numerous countries in Africa are painted with the same broad brushstroke. The truth is Africa is made up of 53 countries that vary dramatically in cultural, socio-economic and political make-up.

It is counter-productive to take a blanket approach to conducting business in Africa. Each country needs to be tackled individually. Companies serious about building big businesses on the continent need to go into Africa with a big business mindset. They need to commit themselves to understanding the complexities of each African country they hope to operate in. This requires being on the ground and gaining an intimate knowledge of the market. Only then will they discover the practicalities of how to do business in that particular market – from the fundamentals of how to register businesses and getting resources through customs, to putting the right products on their shelves and determining the best marketing channels.

It should be noted however, that consumers across Africa behave in similar ways to people across the globe. To be successful, businesses will need to quickly learn how to synthesise local insights with global insights.

Factor in the cost of meeting global standards

In the past, many businesses succeeded in Africa by taking advantage of the unstructured environment, which allowed for a trader-type mentality. This is changing as countries are becoming more economically and politically stable, and more checks and balances are put into place. Companies that want to be at the forefront of industry will need to embrace the new systems, procedures and reporting structures. They will need to report on finances, corporate social responsibility and environmental sustainability. In short, they will need to think and act world-class.

 

In addition, businesses that require adherence to global standards (e.g. strict food safety standards) must be prepared to invest in training and know-how building with local suppliers. A partnership mentality must be adopted and common goals and strategy defined.

Finding suppliers who meet the necessary standards can be challenging when contemplating expansion into Africa. It can be a time-consuming process and possible delays (as long as two years) need to be factored into business plans. Our experience has shown that suppliers with the right attitude and vision trump current technical capability every time.

Secure the right property

The added cost of property rental and construction requires a strong business model to make any operation viable. Securing the right space can be significantly more expensive than in the developed world. A-grade retail space, in particular, is in short supply in many African countries. In addition, it’s been known for businesses to have to pay up to five years worth of rental in advance to secure the property of their choice.

As in all parts of the world location is critical for retail however when new to a market your retail outlet is often the most effective billboard you have and therefore location can take on even greater significance. These better locations come at a cost – a cost which eventually ends up being passed onto the consumer.

Construction also becomes incrementally more costly the further north you go, with skills shortages, availability of materials and extended construction timeline being the main hindrances.

The real challenge of turning the potential of Africa into profit comes when you have to find ways of passing these incremental costs onto the consumer in an environment where the current levels of affordability are low.

Building brand equity

Businesses need to factor in building brand equity when entering new markets. While a small percentage of people – mostly those who have travelled abroad, may have experienced the brand, the vast majority will not have. Brand building is paramount and product benefits need to be securely landed in consumers’ minds. This will not happen overnight, or cheaply, and businesses will need to work very hard to create opportunities for new consumers to experience their brand and start to develop a love for it.

Creating jobs and managing people

On the back of insisting on global standards from themselves and their suppliers, businesses need to provide world-class training and systems to the people they employ. The people of Africa are vibrant, intelligent and eager to learn. When provided with world-class training, they often execute their jobs to a standard that exceeds many of their developed-world counterparts. A job as a cook may be regarded as a humble start, but is actually a foot on the first rung of the career development ladder and has produced many an industry and community leader.

Notwithstanding the challenges involved, investing in Africa – if done properly and to world-class standards – is expected to pay off handsomely. As the economies grow and stabilise and access to disposable income increases, so do the prospects for businesses with tenacity and the intent to embrace this beautiful continent.

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