[BLOG] Venturing into the Dark Continent: How to approach the big move
By Richard Lee Nash, Frost & Sullivan’s Consulting Manager for Growth Implementation Solutions in Africa
Introduction
The African growth miracle has been at the top of chief executive officers’ (CEOs) agendas in recent years. Much has changed since The Economist labelled Africa as ‘The Hopeless Continent’ 10 years ago, with the latest predictions forecasting that seven of the world top 10 fastest growing countries in 2015 will be in Africa.
According to Frost & Sullivan’s Mega Trends, Africa is likely to present significant opportunities by 2020 across key sectors, including manufacturing ($130 bn), energy ($450 bn), agriculture ($120 bn), oil and gas ($300 bn), water ($250 bn), and infrastructure development (>$500 bn).
While the facts present a great case for moving into Africa, the decision itself can be considerably more complex. Stories and analysis of the African growth miracle are often discussed on a continent-wide basis, presenting Africa as a large and homogenous market, which is far from reality.
As with any pipeline of growth opportunities, it is important to strategically assess, prioritise, and focus opportunities, selecting only those most suited to the business. This helps ensure directed efforts and maximum value from the expansion efforts. Unfortunately, access to the correct data is essential to this. It is generally understood that Africa operates in a different manner to other parts of the globe, but the vast peculiarities of each of its 54 countries can provide further complexities to prioritising opportunities and developing entry strategies.
While Africa has shown great developments in infrastructure, governance, regulation, and record-keeping (both historic and current), data availability still compares poorly to developed countries. This has meant that economic, market, and demographic data are often difficult to come by. In addition to data challenges, there are further frustrations added when sourcing and selecting strategic partners or reliable suppliers.
For many companies, the combination of the vast number of countries and lack of availability of information can leave them uncertain on how to approach their expansion into the continent. While the ‘how’ is generally the biggest question our clients ask, the better starting point is the ‘where’. The peculiarities between regions, countries, and even markets within countries means that the entry strategy generally needs to be customised to the strategic markets identified.
The successful selection of the most suitable markets to enter is generally based on a combination of in-depth research on the specific countries and markets, combined with an assessment of current operations. Internal factors such as company strategy, internal capabilities, and product portfolio’s need to be matched to markets showing great potential while providing sufficient infrastructure, resources, and a climate conducive to conducting business. This matching of internal capabilities to the markets allows companies to develop a road map of lucrative and accessible growth opportunities. Consequently, they are able to unlock maximum value for the effort while not stretching current resources beyond their maximum capacities. To achieve this, it is often necessary to take on a growth partner with deep market knowledge and on-the-ground experience in African countries.
Frost & Sullivan’s approach to geographical expansion can be described in five high-level steps
1. The external analysis: High level prioritisation
The first step is to assess the countries and markets in scope. Analysing the countries’ metrics around macro-economic variables, political stability, infrastructure, technology, socio-economic development, legal frameworks, and policy developments can provide sufficient information to begin narrowing the scope of the expansion.
Once the scope of countries has been narrowed through prioritisation based on these high level metrics, the industry (and sub-industry) analyses become key to filtering the potential opportunities. This includes the assessment of clients, market size and growth, market structure and distribution channels, drivers and restraints, substitutes and complementary products, as well as industry specific regulations and policies.
Scoring markets on these metrics will allow you to further narrow down the scope of opportunities leaving you with markets that provide the correct environment and sufficient scale and future growth.
2. The external analysis: Market deep dives
Once the opportunities identified have been filtered by the high level country and industry metrics, a deeper analysis on the remaining markets can be performed to give in-depth views on the markets identified. This successive filtering allows for maximum return on effort – given the shortage of information and the span of countries that often fall within the scope of the business, it is imperative that unsuitable markets are removed from the analysis as soon as possible.
When performing the deep dives, more attention is paid to the specifics of the market, such as supplier availability, logistics, skills availability, distribution channels, and more. Once again, opportunities based on the in-depth market analysis can be filtered.
3. The internal analysis: Identifying internal capabilities
While an external analysis provides in-depth market insights, it is only a component of the final opportunity selection. While indicative of potential opportunities available, the external analysis, in isolation, does not give a guarantee to the selection of the opportunities best suited to the company. Rapid and sustainable growth comes from the successful matching of the market to the organisation’s strategy, resources, and capabilities.
It is, therefore, important to assess your company’s internal capabilities, as well as understand your company’s readiness for change before developing an expansion plan. This assessment would cover measures such as: corporate vision and strategy, product portfolio, skill base, culture, organisation structure, management capabilities and capacity, technologies, and systems.
4. Identify the gap in capabilities and resources
Armed with both the market deep-dives and the internal analysis, markets can be prioritised based on a combination of market potential and ability to enter the market.
The selection of the appropriate entry method is critical as it informs what resources and capabilities will be required. Entry can either be through a distributor, partnership, acquisition or greenfield operations. Based on the selected entry method, a gap analysis can be performed between required and available, resources and capabilities. The greater the gap, the more planning will be required; and this may result in longer lead times to entering the market.
During the gap analysis, the key information should be collected to perform the final iteration of prioritisation where markets are prioritised on their strategic fit, financial attractiveness, ease of implementation, risks and uncertainty, and stakeholder buy-in.
5. Develop a strategic road map
Once the opportunities have been ranked in terms of potential and the ease of implementation, a strategic road map can be developed. At a high level, it will show when entry into prioritised markets is planned, but for each of these markets, the key milestones will also have to be planned. For some markets, there may be significant lead times, therefore, it is important to start planning early to ensure all the key resources, agreements, and systems are in place to ensure timely entry into the market.
Conclusion
The above approach is a relatively pragmatic method to prioritise potential markets and minimise risk through assessing opportunities based on the key facts. For many, the need to expand rapidly into the area in order to take advantage of the expansive opportunities must be balanced against management capacity and resources, as well as rigorous assessment of potential risks and appropriate plans for mitigation before entry.
Richard Nash, Consulting Manager, Growth Implementation Solutions,
Frost & Sullivan, Africa
Richard.Nash@frost.com
