Intra-African trade and investment is low, which means the prospect for growth in Africa is still enormous. Marius C. Oula, Founder & CEO of Maison Catalogue, a business development company, explores how African companies can scale-up and which factors they need to take into consideration.
Given our developed and fast consuming world, the concept of ‘scaling up’ is crucial to consider when starting a business, whether to develop your operations for a start-up and SME or expand your operations for multinational corporations (MNCs). This concept is of great interest for Africa as one of the fastest growing markets in the world.
Scaling up is about a growing demand for your products. Our globalised world, mobility and fluidity of goods allows this to happen, as emphasised by Amazon and Alibaba operations worldwide, and the evolution of technology which has contributed to accessibility of innovation worldwide – any new product can be visible wherever it is manufactured.
Scale-up companies are characterised by a good business structure enabling them to uplift the scale of their operations, thus having solid business infrastructures increase your operations efficiency. Due to the rapid growth a company can experience in Africa, having an efficient business infrastructure is a prerequisite for any business to scale up. With some African states making significant improvement to their economic infrastructures (port, road, airport) and business environment, this has impacted positively on business operations thus attracting more FDI (Foreign Direct Investment). According to the UNCTAD’s World Investment Report 2023 published in July, FDI flows to Africa stood at US$45 billion in 2022 and accounted for 3.5% of global FDI. The number of greenfield project announcements rose by 39% to 766.
Those factors have allowed companies to increase their productivity with available skilled labour. With infrastructures in place, finding the adequate technology to scale up must be according to your industry, which can be done via a network of partnerships or the implementation of new operations.
Production is according to the demand, and Africa having the youngest population in the world shows a great market for innovative products. The improvement of business environment has created competition, like in developed countries.
Having innovative products is not enough – the quality and price of the offering needs to be good too. This is where technology plays a vital role; evolution of technology brings quality.
The emergence of TEMU, an online retailer with low pricing and good quality, shows that competition is always for the good of the customers as they can buy quality at a cheaper price.
China has been a game-changer in the world and especially in Africa due to their ability to produce more than anyone with good quality. Businesses intended to establish in Africa must have an efficient business infrastructure to match the increasing demand of their products otherwise someone else will fill the void. This is why African governments have been working to improve their business environment and infrastructures, to allow companies to scale up throughout their countries because the market is vast and appealing. The American giants, Wal-Mart and Amazon, establishing their operations in Africa denotes the level of business and economic infrastructures in place and the potential of the African market for your local and cross border operations.
The market in Africa differs from one country to the next; each country has its specialty. Knowing the culture and perception of the people of a specific country is crucial in establishing a venture or selling a product in Africa, which needs not an educational background but an experience on the ground to understand customer behaviour.
A spread of African MNCs in Africa (Ecobank, Dangote, Shoprite, MTN) conquering their local and African market is an indication of how businesses can expand throughout Africa by cross border investment. In Africa a business can start by selling on the street without being registered as a venture, and an established business can be challenged by a start-up offering less quality but a cheaper offering (the growth of proximity small retailers called ‘tuckshops’ in South Africa demonstrate this statement).
Start-ups definitely have to take into account branding to determine how they want their product to be perceived. Branding creates a culture which draws your customers to your brand for as long as you keep supplying what they like. A good branding strategy can maintain your customers for generations, given the culture created around it.
Africans like to identify themselves with what they consume, especially when it is part of their daily routine. Given the multiplicity of offerings from all over the world, having a good branding strategy can propel your product and maintain your company market share, despite newcomers in your niche.
You have to meet the customer demand or come with an offer that suits consumers’ expectations to breakthrough in any market around the world. The good news is, in Africa, customers are very tolerant with the products they choose to use often, even if their expectations are not met. The reason is, when they have accepted the brand as part of their lifestyle, they stick to it until they have a better offer relating to the price.
This is why your pricing model is important in penetrating the African market. Your pricing must match your competitors but in a view to not downgrade your brand as the pricing is likely to be perceived as related to the quality of your product.
When your sales grow, naturally you have to produce more and expand your operations; this is where companies must rely on consulting firms that can be helpful in market research and market penetration. The know-how of the specificities of the African market is crucial to come with the right offer. Start-ups need an adequate business infrastructure and an efficient supply chain to increase productivity.