Many multinational businesses and companies are devising global expansion strategies on how they can get into different international markets. For a lot of these companies and businesses, entering the African market constitutes part of their expansion strategies. With Africa having the highest urbanization rate and a thriving youth population, it becomes a lucrative thought for many businesses to enter into key African markets as part of their operations.
However, in the crafting of global expansion plans, global businesses entering into African markets should note the following:
The Business Model and Pricing Considerations
The business operating model a company employs in relatively “Mature Markets” like New York or Europe will not in Africa. The reason is simple: the markets are different; the indices are markedly different and the Market forces in each market is completely different.
Thus, a company entering a market in Africa should ask this question and have this key consideration in mind: what makes this place unique?
The pricing model a business operates in any of the thriving “Mature Markets” in the world will not work in Africa. Africa is rough. Most parts of Africa is deemed to be “3rd World”, so it means that they are still developing. The currency is not as strong as other currencies like the USD or the GBP. In the myriad of its seeming weaknesses, also lies the relative strength of Africa.
A company pricing a software package for the annual subscription value of $600 USD will make a grave mistake if it utilizes the same pricing model in Nigeria. The reason is simple: $600 USD is approximately ₦215,000.00 (two hundred and fifteen thousand naira) when converted to Naira and no Nigerian would ever pay ₦215,000.00 (two hundred and fifteen thousand naira) as annual subscription to a software product. Even high performing Nigerian companies will be hard pressed to pay such a price for the use of a software product, given that there are several other running expenses they incur in overheads as part of their operations. For this simple reason, an international company trying a run a Nigerian operation without factoring in the local currency as a strong determinant of pricing, has automatically lost the Nigerian Market because the local operators will simply not buy whatever they are selling.
In order to devise a winning strategy, any international company coming into Africa will have to learn to adapt its pricing strategy to local currency considerations in each of the markets they are trying to get into, country by country. Doing otherwise will simply mean that their pricing strategy will not work and they begin to lose from there.
Understanding the Business Terrain
Infrastructural deficits, power outages, bad roads, Security issues (depending on the country and specific location in question), economic and political challenges, alongside other issues, are part of Africa. Each of the countries within the vast continent have their own unique issues, and international companies seeking expansion into Africa should note these.
The things and condiments people take for granted out there in Europe and other parts of the West are factors that are painfully missing in many parts of Africa. Good roads, steady electricity, central water systems, good housing, organized business, telecommunications—these are all issues Africans grapple with on the continent.
For an international company coming into Africa to do business, it is pertinent to understand these infrastructure gaps. Perhaps the business is one that is intended to have a direct (positive) effect on tackling these gaps, or perhaps not. Either way, it might be an eye opener and a source of disillusionment to expect the same standards obtainable in countries outside Africa within Africa. It would be infinitely more rewarding for these companies to consider their options for Africa before diving to do business on the continent and to map out short-term and long-term strategies on how to tackle these issues particularly as it concerns their business operations in Africa’s key markets—depends on the where the choice destination is.
The world thrives on data collection and Big Data analytics, which helps to reduce decision making into actionable numbers that do not lie. Collection, processing and utilization of data points are high points in advanced countries, but in Africa, this is not the case.
There is a huge data deficit in Africa as a whole, which lightens or worsens depending on the African Market a company is trying to penetrate into. A company trying to expand into Nigeria’ financial market may have a problem in data access because a large percentage of Nigeria’s population is unbanked and reside in rural communities, without access to credit and banking facilities. Without the data to pore through, analyze, and make informed market decisions on, it may well mean that a company is trying to go in blind.
Since data sourcing and analysis is a problem, the best approach in this situation would be to adopt an on-the-ground approach using local partners. This does not mean that gathering needed data will become easy, but at least, using local partners will ensure the use of data collectors that understand their terrain.
Africa presents a challenge for the world, but in its myriad of challenges, lies its unique selling points: there are a lot of frictions that need to be handled in order to ensure that business moves quickly and the continent thrives. Companies seeking expansion into Africa have a lot of considerations to work through before they make the leap.