Africa Market Entry: Strategies for consideration
By Grant Hatch, Pieter Becker and Michelle van Zyl
Table of contents
Introduction Unlocking Africa’s potential
Understanding the market opportunity Developing the right value proposition Crafting a market entry strategy Overcoming sourcing and procurement challenges Choosing the best manufacturing strategy Developing effective distribution Optimizing marketing and promotion
6 8 9 11 12 13 14
2 | Africa Market Entry: Strategies for consideration
Logistics can be unreliable and infrastructure readiness lags behind much of the developed world. and business environments promise to drive continued growth in Africa’s consumer markets.
Rapidly improving income levels. most companies need to adjust their strategies and expectations when entering the continent. which propelled it to $600 billion in 2010. Accenture presents concrete steps and recommendations leaders can use to tailor their strategies to the challenges and opportunities they will encounter on the African continent. As a result.Introduction
Companies searching for new emerging market growth opportunities should not overlook Africa. Africa offers much more than real estate alone: Since 2000.
. In fact. Sub-Saharan Africa has experienced consumer spending growth of 4 percent per year. However. Executives intrigued by the prospects of competing in Africa need solid advice on why the region’s consumers are attractive. and how they can capture the market’s potential most effectively. In this article. consumer spending is expected to reach nearly $1 trillion in 2020. which segments they should focus on. infrastructure. according to a 2011 Euromonitor report. fully understanding a company’s potential
opportunities on the continent can be challenging. While the continent’s sheer size would merit attention.
and focus on which countries it makes sense to enter. Market opportunity 2.
For example. average wages are growing. with less reliance on exports and more reliance on domestic demand in the form of consumer spending and imports.Unlocking Africa’s potential
A company’s market entry plan must clearly reflect the role Africa will play in its broader corporate strategy. This rapid and sustained rise in consumer spending results from three key forces: A population forecast to reach almost 2 billion by 2050. Seven key market entry steps
1. Market entry strategy
How do we enter the market with minimal risk?
4. Manufacturing 6. the most significant contributors to market growth are changing. and the consumers they will serve. do we use local manufacturers or do we build capacity?
How do we deliver our products or services to our customers?
What influences the African consumer’s purchasing choice? What do they buy? Where do they buy? How do they buy? When do they buy?
Companies can use a simple framework to execute this entry strategy effectively. By 2050 the population is expected to increase to almost 2 billion. Sourcing 5. giving rise to an emerging middle class that will become more demanding as income levels and spending increase. the competitors they will face. and with what timing. Value proposition 3. As shown in Figure 1. Furthermore. from gaining insights on the biggest opportunities to deploying effective marketing campaigns that support the company’s offers. Distribution 7. Despite currently low per-capita income levels in Africa. in what sequence. regardless of the markets or segments on which they choose to focus.
Understanding the market opportunity
The first step toward participating in the African opportunity mandates that companies develop a deep understanding of the market. between 2010
4 | Africa Market Entry: Strategies for consideration
. the framework encompasses the full lifecycle of doing business in Africa. which increased to an estimated 1 billion in 2010.1 In 2005.
Figure 1. while the continent’s wealth of natural resources will undoubtedly continue to be important. Africa had an estimated population of more than 920 million. Marketing and promotion
How do we ensure that there is demand for our prodcut/ service?
Do we understand our target market?
Do we have the right product/ services to offer?
Do we source locally or import?
If we produce locally.
6 This significant mobile adoption by consumers has made it easier for companies to reach them through mobile marketing campaigns. Rapid growth in population and urbanization will also place additional constraints on the Africa’s infrastructure requirements. will lead some African consumers to purchase more goods and services.5 Urbanization. Consumers in Africa are becoming easier to reach due to a remarkable uptake of mobile services: By 2012 almost 50 percent of Africans (more than 500 million people) will own a mobile phone. In addition to improving access to consumers. the mobile revolution has created a booming industry that employs and provides income for hundreds of thousands of people. three key trends are allowing consumers to buy more and enabling companies to reach them more effectively:
Improving access to consumers via mobile technologies. 65 years or older). Furthermore. compared with 30 percent in 2008. and communications. and for all nations regardless of colonial origin. Furthermore.. mandating greater levels of planning and urban investment from public and private sector players alike. contests and promotions. GDP in Africa is growing even faster than the continent’s meteoric rise in population. for countries with favourable or with unfavourable agricultural resources. consumers are more savvy because they are now linked to the rest of the world through their cell phones and no longer isolated.2 Expansion of the economically active population will lead to increased demand for goods and services. in turn. services.and 2050. for mineral-rich and mineral-poor states. Africa’s active/working age population will grow from 56 percent of the continent to 66 percent—a striking contrast to more mature continents whose populations are aging and moving into the dependent category (i.
. By 2050 almost two-thirds of the population will live in cities.3 By 2020. Africa’s growing and increasingly wealthy population is becoming more urbanized as well. Accenture estimates that poverty levels in Africa will fall to 20 percent of the population from nearly 45 percent in the 1980s. compared with 40 percent in 2010. One example of this is the significant drive in Kenya to open new business call centres.4
Rapid urbanization. Significant decrease in poverty. Poverty fell for both landlocked and coastal countries. In fact. and will make it easier for companies to reach consumers with products.e.
a division of Johannesburgbased Standard Bank Group. self-employed vendors: Nairobi alone. for instance.A healthier and more stable business environment. and business skills.7
6 | Africa Market Entry: Strategies for consideration
While this development bode well for African market entry. representative data on consumer spending is sparse. Trade among African countries in the past has been slowed by the hefty tariff barriers that countries impose on imports. CfC Stanbic used a tool that enabled portable psychometric testing of potential loan recipients. For example. banks and telecommunications providers). To tap into this opportunity while reducing its loan default risk. For banks such as CfC Stanbic. accurate. rapidly assessing their risk tolerance. But firms can bridge this gap by creatively tapping into local networks to gather insights. and by designing market-facing pilot “experiments” that feature risk mitigation mechanisms.
CfC Stanbic. ethics and honesty. and further mitigated risk by using “seed loans” with “graduation plans. which highlighted Africa as a continent that is making strides toward becoming a businessfriendly regulatory environment. provides an example of how this is done. the global drive for the rapid opening of borders to regional and international trade is forcing African countries to open up their borders for imports. partnering with academia and companies that possess usable customer data (e. Africa has fostered a number of formalized trade blocs that have been the catalyst for loosening trade restrictions between member states and the global economy in general. This fact has been recognized by the World Bank’s 2009 Ease of Doing Business report. the challenge is loaning money to the most promising of these entrepreneurs.000 such businesses. CfC Stanbic also deployed a mobile workforce to complement its local banking branches. A loosening of trade restrictions. companies need to be aware of potential pitfalls..” which allowed the bank’s business with a given customer to grow as the customer’s credibility was established. One of the key aspects of doing business in Africa is the predominance of individual. They can thus build a qualitative model of how each market operates—a necessary but very different approach to that used to understand developed markets. intelligence.g. because Africa has a large informal economy with a prevalence of cash transactions. Fewer conflicts. higher economic growth rates and improved business regulation make Africa more business-friendly every year. has approximately 100. However. Companies also need to be prepared literally to “walk” the markets and gain insights from talking to street vendors and observing consumers. which primarily relies on analyzing large volumes of quantifiable data. more democratic elections. many of whom have little or no credit history.
leaders need to create a differentiated. promotion)? Do we offer a distinctive value proposition for each consumer segment or follow a broad approach to all segments? Is our value proposition economically viable?
. To achieve this goal. which aims to serve all African consumers (including those living on less than $1 each day). Consumer goods giants such as Unilever and P&G have excelled at understanding and meeting the unique needs of
African consumers. attractive offering that takes into account the special nature of African markets. community and family are strong elements of African culture. which involves selling much smaller than usual packets of detergent or salt. place. and companies need to make sure their branding and promotional efforts resonate with these values. price remains the key consideration for the majority of African consumers—a reality all offerings must reflect.8
Should we have a distinctive value proposition or simply follow our competitors? Which aspects of our value proposition will be distinctive (price. It has also prevented the margin-eroding resale of its bulk products in smaller portions. In addition. This strategy has allowed Unilever to reach the volumes required to support expansion while capturing the loyalty of lower-income customers. Potential initiatives could include introducing corporate social responsibility and sustainable development programs that position the firm as something more than just another shopping choice. product.Developing the right value proposition
Once they understand the market. had to find a profitable way to make its products available and affordable for the poorest Africans. the company created the “small unit packs/low unit price” concept. Unilever collaborates closely with local wholesalers who not only help the company to supply Africa’s informal market but also provide it with market insights and customer feedback. Unilever has embedded corporate social responsibility in its strategy to further boost the brand’s relevance with Africans. Unilever. because of lower income levels. For instance.
complex regulations. as well as locally produced cans. it can also provide immediate access to existing networks and distribution channels and the opportunity to gain deep local market insights that companies can scale up to address other markets. control. or participate by licensing the firm’s products and services to another company. since importing raw materials or finished goods into Africa is hampered by many of the same hurdles that make market entry difficult. but selecting the right partner requires a careful appraisal of ownership.9
8 | Africa Market Entry: Strategies for consideration
. skills and networks are needed?
Crafting a market entry strategy
While Africa has shown tremendous improvements as a consumer market.e. Each approach has its pros and cons. Global brewing giant.Key Questions
Does the market entry strategy align with global/regional guidelines? What is your level of risk/ reward propensity? How quickly do you want to scale up in the target country (incremental versus big bang)? What degree of local knowledge. and substantial import fees. but carries a high brand risk and limits the potential to exploit local market opportunities.000 African farmers. companies need sourcing partners with strong links to the community and high levels of intelligence regarding local preferences and issues. including corruption. the company hopes to source from and work with up to 45. Africa’s roads and basic infrastructure are often poor. many barriers to entry still remain. which increases the cost of distribution. establishing training and incentive programs that enable them to fulfill the company’s brand promise. leaders must assess risks and then decide whether to establish a standalone business. SAB Miller has also signed long-term contracts to buy crates from a local producer.
What is the cost and benefit of sourcing locally versus importing? Is the required raw material available in the target country? Are substitute raw materials available in the local target country? What degree of local investment (skills & financial) is required to integrated local suppliers into your value chain?
Overcoming sourcing and procurement challenges
Companies have to develop a stable. burdensome regulations and bureaucracy. seek partnerships and joint ventures. cost-effective supply chain that enables them to meet local needs and overcome local challenges—all while maintaining profitability. To choose the right strategy for overcoming these hurdles. enter via an acquisition. while its ports are often congested and inefficient. Licensing offers the least risky and lowest-cost option to expand market reach. access to distribution channels or political connections. No small feat. They also need to invest in the capacity and capabilities of these partners. while entering Africa via an acquisition can be expensive and time consuming. SABMiller has been able to overcome the challenges of sourcing in Africa by setting up cooperatives with local farmers to supply barley and cassava to suit the tastes of different consumer segments. Entering via a greenfield investment (i. Conversely. By 2012. pricing and local partner capabilities. Furthermore. for example. going it alone) can result in the biggest payoff if successful. Partnering provides a faster way of gaining access to local market knowledge and distribution channels. high taxes..
To overcome these barriers. but presents the riskiest choice for companies that
lack local market knowledge. Corruption is a ongoing concern. as are the lack of infrastructure and local talent.
a few general guidelines can nonetheless be useful. originally an Indonesian brand of instant noodles. and in Nigeria in particular. provides an example of how foreign brands can be manufactured successfully in Africa. However. the largest manufacturer of instant noodles in Nigeria.g. as is the provision of technical support and training to local manufacturers to ensure high standards for locally sourced raw materials. For instance. companies doing business in Africa should act to improve the stability of key resources by introducing term contracts. Indomie embarked upon a backward-integration strategy. Because of its ability to respond quickly to local demand. setting up in Kenya to service other East African markets)?
Choosing the best manufacturing strategy
In addition to solving sourcing problems. In 2008. making upstream acquisitions to lock in supply. The company invested in world-class local production facilities and tapped local sources and its own manufacturing capabilities to source raw materials. While the right manufacturing strategy should be specific to each company’s context. and goals.
DUFIL.. challenges related to importing key ingredients made it difficult for the company to meet demand for this new product. which became very popular among Nigerian consumers. Its Indomie brand. with plans to expand aggressively. a company must develop a robust and relevant manufacturing strategy. Building trust-based relationships with local producers is also important.Key Questions
Is there a cost advantage of producing products locally? Is local skills and capacity available to produce your products? What level of investment is required to produce products locally at the required global quality standards? Is there a strategic logistics benefit of setting up a manufacturing capability (e. the company introduced a new flavor tailored to local tastes. To overcome these challenges. Today.10
10 | Africa Market Entry: Strategies for consideration
. the brand is being produced in nine ultra-modern factories in two key locations in Nigeria. has been a runaway hit in Africa. Indomie has captured 70 percent of the Nigerian instant noodle market. Such a strategy should either feature strong partnerships with local producers or focus on the development of in-house manufacturing capacity close to a company’s target markets. capabilities. and investing in diversified geographical sources to minimize disruptions.
To boost its market share among rural. which represent crucial market entry points. etc.)?
. and direct-distribution models.)? What is the frequency of consumer purchases at these points? Are there existing distribution networks that service the main consumer purchase points? What is the best distribution method to reach consumers where existing networks don’t exist (e. Companies can effectively reach rural consumer segments by employing local residents to act as agents. wholesale. MTN has also developed lower denominations when selling airtime. low-income Africans. rural towns etc.11
What are the main consumer purchase points (e..g. and has given agents motorbikes to reach the most remote areas. established kiosks in rural areas. open-air markets.
Mobile operator MTN is a seasoned veteran of doing business with rural African consumers. companies should build strong sales and distribution networks by leveraging a mix of third party. trucks. simply reaching the final consumer can be extremely costly and difficult. Poor roads and limited infrastructure can make delivering products or services to consumers a daunting task. public transport hubs.g. Because of these kinds of innovative distribution and promotional activities. As a result. local agents.Developing effective distribution
Given that more than 60 percent of Africans live in rural areas and have limited access to transportation. or by partnering with local organizations with links to rural markets.. reflecting the low and unpredictable income of many African consumers. MTN has captured a significant portion of Africa’s low-income consumer segments. MTN has created services tailored to their needs through a network of local agents. with operations in 21 markets across Africa and the Middle East (plus Afghanistan).
g. and they often make purchases in a more erratic. and are visible in the market through relevant media and campaigns such as radio and contests. In much of Africa. making such interactions comparatively rare events. In particular.Key Questions
What are the available marketing channels in country? What is the preferred marketing channel for each target segment (e. respectively. They should spend their marketing budgets wisely. being mindful that TV. use of local community celebrities)?
Optimizing marketing and promotion
Companies accustomed to stimulating demand through Western-style marketing and promotional approaches will have to rethink their go-to-market strategies for the African market. particularly those living in rural areas or urban slums. weak infrastructure limits access to media.. TV vs. The majority of African consumers buy from informal street vendors and kiosks..
As a result. whether TV. Furthermore. radio and print campaigns will not have the same impact that they would in developed markets.g. do not always reach these masses.
12 | Africa Market Entry: Strategies for consideration
.e. when attempting to reach lower-income segments.. traditional media such as television and radio. companies should identify strong local partners to help them access informal markets and obtain the information they can use to refine their offerings and messages. or social media. companies need to ensure that their promotions and marketing efforts are focused on the community. practical use and benefit of product) is required in communications materials? Do the product/service marketing take into account community endorsements (e. ad-hoc pattern than Western consumers. websites. radio)? What level of education (i.
So. To overcome limited
access to TVs. EABL turned this perception around to the point that it became the biggest brand in East Africa. It also held contests to boost audience engagement. EABL provided training and branded material to retailers to ensure that the brand was delivered successfully to target consumers.12
. EABL sponsored “viewing bars” where the show was screened in conjunction with promotions on EABL drinks. It also leveraged mobile and Internet technology: the company generated more than 1 million SMS votes and Web traffic of approximately 70. While younger consumers initially perceived its Tusker Lager beer as old-fashioned. and knew that the impact of traditional TV. to maximize the return on its marketing resources.000 hits per week.or radiobased advertising would be limited within East Africa. The company had a limited marketing budget. a reality show focused on regional talent. EABL focused on a single.East African Breweries Limited (EABL) has employed a tailored marketing approach to become East Africa’s leading branded alcohol beverage company. high-impact platform that would resonate with younger consumers: Tusker Project Fame.
and preferences of consumer segments and by applying a systematic approach to market entry and ongoing success. companies are devising creative ways to gather the market insights they need to craft compelling consumer offers that can both meet the needs of African consumers and generate robust revenue and profits. behaviors.
14 | Africa Market Entry: Strategies for consideration
As the African opportunity grows more attractive. firms can capture the African opportunity on their own terms. By focusing on the distinctive needs. in the process ensuring long-term profitable growth. Experience shows that successful organizations employ a structured approach to understanding and doing business with the African consumer.
Ericson Business Review. Grant also leads the products management consulting business in South Africa. He has a strong financial analysis background and a demonstrated ability to build relationships and deliver strategy at executive level. mobile telecoms.com
. focusing on corporate strategy in the products industry group. which includes a focus on retail.j.References
1 UN Population Division.hks. pharmaceuticals. electricity distribution.ft. travel and transport sectors.” stocknewsline. 2010 3 Maxim Pinkovskiy.com/cms/ s/0/c55f7318-f957-11de-80dc00144feab49a. 2010 4 Maxim Pinkovskiy.com Pieter Becker is a consultant in the Strategy service line and part of the Africa Strategy Team. www.edu/ var/ezp_site/storage/fckeditor/file/ pdfs/centers-programs/centers/cid/el/ gem-2010/presentations/Standard_ Bank_Group_SME_Pilot.” Jasson Nissa. telecoms infrastructure.” http://www. He has managed strategy assignments across a range of industries including financial services. Pieter has been with Accenture for more than 3 years and is based in Johannesburg. February 2007 12 Source: EABL Annual Report. consumer goods and services.” Mats Thoren. pieter. 2008 7 Source: Standard Bank Group— Kenya SME Pilot.pdf 8 Source: “No whitewash: Unilever’s drive to dominate Africa. December 2009 11 Source: “Distribution is the name of the firstname.lastname@example.org@accenture. focusing on growth strategy and execution in the products industry group. m.harvard. Michelle has been with Accenture for more than 3 years and is based in Johannesburg. Grant is an experienced strategy consultant and business leader with highly developed analytical and team leadership skills. Columbia University and NBER. industrial. automotive.com Michelle van Zyl is a manager in the Strategy service line and part of the Africa Strategy Team. 2010 2 UN Population Division. 2010 6 Africa Mobile Fact book. April 2003 9 Source: “African group brews new customers. Pieter has worked in various countries across Sub-Saharan Africa to assist clients to expand their operations and reach in Africa. agro-processing and diamond mining. 2010
About the authors
Grant Hatch is a senior executive in the Strategy service line in South Africa and is responsible for building its profile as a thought leader in the South African marketplace. and has assisted a number of clients to improve top line growth. Massachusetts Institute of Technology Xavier Salai-Martin. Columbia University and NBER.html#axzz1En8JK3ob 10 Source: “Noodles War: Indomie and the competitions. Massachusetts Institute of Technology Xavier Salai-Martin.becker@accenture. Michelle has primarily focussed on developing client relationships within East Africa.van. 2010 5 UN Population Division. fast moving consumer goods. grant.
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