Dueling with Lions
Competition has finally arrived in Africa, explains BCG’s Patrick Dupoux, but players need to be selective and maintain a long-term view to succeed over both MNCs and local competitors.Watch the video
In the high-stakes battle for market share in a growing African economy, local companies leverage strong advantages—but opportunities flourish for multinational corporations (MNCs) as well.
The most exciting aspect of the global marketplace is the vast array of opportunity it brings. The current business climate in Africa is a great example. Although the country continues to face multiple challenges—including a decline in oil prices, infectious disease, and high-profile attacks by militant groups— .
A primary contributor to this economic growth is increased political stability, with a majority of African countries now holding democratic elections. Africa also has a sizable portion of its population at working age, and these young adults are more educated than ever before. Thus, Africa’s economic climate is ripe for companies looking to invest and expand their reach. Yet companies need to remember that while long-term prospects are promising, short-term uncertainties in the African economy have appeared and cannot be overruled.
Described as African Lions,, and in some cases, succeeding against them.
When looking at the success of African Lions, four factors are at play:
Most of the companies already based there are doing business primarily within Africa, so the stakes are higher for them to succeed locally. It also means their products and services are developed specifically for African markets.
There is no substitute for on-the-ground experience, and African Lions have the upper hand when integrating within the local ecosystems. Business leaders draw on years of building relationships, making verbal agreements, working within distribution chains, and partnering with suppliers to get things done.
Many African Lions are more flexible than their multinational counterparts when it comes to systemization and rules. For example, when working with banks or making agreements with distributors, many of these companies may not have the same standards for guarantees or written agreements that overseas investors might have in place. African companies also have a greater flexibility in decision making, since headquarters and administrators are all local.
Finding reliable market data in Africa is still a challenge for MNCs in countries where reports and statistics often are not accurate. Local companies have the advantage of utilizing their own sources and relying on their own judgment to cover that information gap.
It is important for MNCs doing business within Africa to understand the strengths of African Lions. And while it might be challenging to fully utilize the same business strategies of African Lions themselves, there are indeed strengths that MNCs have over the local businesses there. These strengths are referred to as the four Ps:
MNCs have profits that come from sources outside Africa, giving them the ability to weather storms that this growing economy still faces. Continuity is also important, and MNCs should consider dedicating teams willing to pursue the African opportunity for the long-term, rather than the typical three-year expatriate stint.
Leveraging strong global brands and working to build long-term relationships with local distributors and stakeholders is key to finding growth within the African economy.
Rather than trying to meet the flexibility of local companies, MNCs can use their successful rules and systems to provide stability and predictability in a climate rife with territory clashes and price competition.
Using existing technology together with local talent to build databases and platforms can help MNCs run more efficiently within Africa.
The increasing strength of the African economy makes the climate ripe for businesses to succeed, whether locally owned or MNCs looking for a new place to expand. The key to success for MNCs making overseas investments in Africa is to learn the successful techniques of African Lions, and emulate them as much as possible. African Lions can also benefit from this new competition, learning how to offer a more predictable experience to both customers and supply chain partners alike, as well as better understanding the importance of improving operational processes and ways to approach issues of management succession. Most importantly, MNCs need to be prepared to compete by leveraging their own particular strengths when doing business in Africa.