Companies need a new approach to competing in Africa

Companies need a new approach to competing in Africa

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Companies are starting to place big bets on Africa, but many of them are still figuring out what it takes to win on the continent, according to a new report by The Boston Consulting Group (BCG). The continent is a dizzying collection of emerging markets, each with its own unique business environment, risk profile, and potential. Companies frequently do not know what to expect, where to start, and how to prosper.
‘In the past, multinationals treated Africa as a trading post, extracting unfinished natural resources and shipping goods for a small group of westernised elite consumers located in the continent’s large coastal cities,’ said Patrick Dupoux, a BCG partner and co-author of the report, titled Winning in Africa: From Trading Posts to Ecosystems. ‘To succeed in the new, more diversified Africa, companies will need to change their approach. They will need to actively engage with the continent by building local teams and networks of suppliers, partners, communities, and public and private stakeholders. We call this the “ecosystem mindset”.’
With other emerging markets slowing down, the stakes are high for global companies in Africa, which is on an upswing. Winning in Africa outlines a series of macroeconomic shifts that are changing the fortunes of a continent that analysts and journalists once called “hopeless.”
• The equivalent of 11 percent of GDP is flowing into the continent in net capital flows.
• By 2040, Africa will have a larger working-age population than China or India.
• Mobile penetration has jumped from less than 2 percent in 2000 to more than 60 percent in 2011.
• In 2011, for the first time in history, a majority of African nations were governed by democratically elected leaders.
• By 2017, there will likely be 257 million consumers with discretionary income.
Collectively, these forces have promoted the development of more diversified and sustainable national economies. ‘Africans have good reason to be optimistic and enthusiastic about their future,’ said Stefano Niavas, a BCG partner and another report coauthor. ‘The continent has undergone a revival that few people were predicting 15 years ago.’
Winning in Africa lays out an approach for companies to take advantage of these trends by addressing five specific African realities.
• Africa is the final frontier. Africa is the last sizable area of untapped growth in the global economy. But given the operational challenges, companies will need to bring Africa into the boardroom to ensure continuity, commitment, and persistence. Unless Africa is a C-suite initiative, the effort will be wasted.
• There is not just one Africa. Clusters of African countries share language, culture, borders, and trade and financial agreements, but they all require vastly different approaches to strategy, organization, and business. Companies need to address this diversity.
• Talent, market knowledge, and risk are bottlenecks. More so than in most other emerging markets, talent and market knowledge are in short supply in Africa. Political, economic, and governance risks remain in many markets. Consequently, companies must invest aggressively in people, market intelligence, and risk management.
• The African customer is rising. Companies must develop products, services, and brands that resonate with consumers and business customers. Because distribution is so challenging in Africa, companies need to have sufficient control to ensure that goods and services are delivered as promised into the heartland and not just along the coast
• Africa has an ambitious development agenda. African leaders are diligently working to improve the social infrastructure of their nations, to create jobs, and to generate higher-value economic activities. Consequently, companies should figure out how they can help countries achieve their development goals while also making a profit.
‘Success in places like China or India will not necessarily translate into success in Africa,’ said Tenbite Ermias, a BCG partner and coauthor. ‘But companies that figure out how to build deep and lasting businesses in Africa will be handsomely rewarded because the barriers to entry remain formidable.’

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