What Multinationals Need to Do to Succeed in Africa

Executive Summary

Africa shows every sign of being the world’s next big growth market. It is home to more fast-growing economies than any other region, hundreds of successful big companies, and a billion-person, urbanizing consumer market whose spending outstrips that of India. Companies that succeed in Africa, like SABMiller, have the imagination to see Africa’s unmet needs as opportunities for growth, and the long-term commitment required to build businesses of meaningful scale. Their innovations and investments also create real social impact by providing products that were previously unavailable, boosting productivity and growth, and creating large numbers of jobs.

lucydphoto/Getty Images

Africa shows every sign of being the world’s next big growth market. It is home to more fast-growing economies than any other region, hundreds of successful big companies, and an urbanizing consumer market whose spending outstrips that of India. In an aging world, Africa is the exception: half of its people are under 20, and its population is projected to double to 2.5 billion by 2050. Fueling this dynamism, Africa is adopting technology at a furious pace: it will soon have double the number of smartphone connections than North America.

Yet Africa remains a challenging place to do business. Infrastructure is patchy, markets are fragmented, and regulations are complex — and although incomes are rising, poverty remains widespread. For some Western firms, those obstacles are just too daunting.

How can companies navigate Africa’s many challenges and translate its growth trends into profitable, sustainable enterprises? Our research into firms that have succeeded in Africa highlights two essential requirements: the imagination to see the continent’s unmet needs as opportunities for growth, and the long-term commitment to build businesses of meaningful scale.

Further Reading

One compelling case study is that of SABMiller. The beer maker started as South Africa’s national champion, snapped up global brands such as Pilsner Urquell, Miller Lite, and Peroni, and ended up on the London Stock Exchange’s FTSE 100 list before being acquired by rival Anheuser-Busch InBev for $103 billion in late 2016. In large part it was SABMiller’s success across the African continent that made it such a growth star and justified the eye-watering price tag for its takeover. From 2007 to 2016, the brewer saw its African sales outside of South Africa climb from $280 million to $1 billion. By 2016, SABMiller had brewing operations in around forty of Africa’s fifty-four countries.

Mark Bowman was the managing director of SABMiller’s Africa region during that decade. He told us, “We spotted a huge opportunity in Africa’s beer market, and we seized it at the right moment. In the early part of this century, most global firms saw Africa as unattractive, so we had limited competition.” SABMiller knew otherwise. The continent’s young population was expanding much faster than most other regions and its economies were growing — bullish signs for beer consumption. SABMiller’s insight was simple yet powerful: like consumers the world over, Africans like beer. When they can start spending a portion of earnings on nonessentials, one of the first luxuries they turn to is an upgrade from home brews to commercial brands.

To capitalize on that opportunity, SABMiller adopted a bold long-term strategy for Africa. One element was an aggressive program of brewery building across the continent. With its equipment-supplier partners, SABMiller developed a standardized “brewery in a box” that it could quickly assemble. A second element was to hone its marketing insights: using the brand-positioning approach it had developed globally, SABMiller created a diverse portfolio of African brands tailored to local markets.

In Nigeria, for example, SABMiller developed a new brand, Hero. SABMiller wanted the new beer to come across as local, not the product of a multinational. It designed the label with a rising sun, a favorite symbol of the Igbo people, an ethnic group native to Nigeria. And in a country where it can take up to six hours to earn enough to buy a half-liter of beer, SABMiller priced the brew 25 percent below its main competitor. Hero turned out to be one of the company’s most successful brands ever.

That is just one of the success stories we feature in our new book, Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market. In it, we distill the insights from over 3,000 McKinsey consulting engagements across Africa, and hone case studies from interviews with dozens of successful CEOs, entrepreneurs, and development leaders.

Many of those successful firms have created new products and services — and sometimes whole categorie— that are targeted at African needs, tastes, and spending power. They have also innovated to solve the problem of last-mile delivery: Africa is a vast continent with generally poor transport infrastructure and big gaps in communications, where many millions of people lack formal postal addresses or even a street name.

As one example of such innovations, consider the story of Indomie noodles — one of Nigeria’s most successful consumer products. Sold in single-serving packets for less than 20 US cents, the noodles can be cooked in under three minutes and combined with an egg to produce a nutritious, convenient, low-cost meal. Dufil Prima Foods introduced them to Nigeria in 1988. As Deepak Singhal, the company’s CEO, told us: “We created a food that was relevant for Nigeria. And in ten to fifteen years, we became a household name.”

In part that is thanks to Dufil’s innovation of getting Indomie noodles to consumers throughout Nigeria. It has a vast “feet on the street” distribution network of more than 1,000 vehicles including motorcycles, trucks and three-wheelers. When distributors can’t go any further by vehicle, they continue by foot —making sure the noodles are available in the thousands of small, informal outlets that dominate retail in Nigeria.

Western multinationals would do well to learn from the strategies of African champions such as SABMiller and Dufil. US food company Kellogg has done just that — and put its money where its mouth is by investing heavily in Dufil. In 2015 Kellogg ponied up $450 million to acquire a 50 percent stake in the West African sales and distribution arm of Dufil’s parent company, Tolaram Africa. In 2018 it invested a further $420 million for a stake in Tolaram’s food-manufacturing business.

To turn the African growth opportunity into gold, companies must be ready to shape and execute targeted strategies that reinvent products, services, markets, and business models for local needs. Companies like Dufil and SABMiller provide examples that can be an inspiration to others: they have found ways to overcome persistent challenges that limited markets, hampered business growth, and made life harder for ordinary people. Their innovations and investments also create real social impact by providing products that were previously unavailable, boosting productivity and growth, and creating large numbers of jobs.

Powered by WPeMatico

Antiques

AdSense