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Countries with high income and weak institutions have pockets of wealth, and therefore purchasing power. But their lack of institutions places greater demands on companies. They will need strong capabilities in managing relationships with government and other stakeholders, planning for and managing security challenges and crises, and creating supply chain resilience to ensure consistent service. Nigeria-based Dangote Group, one of the largest conglomerates in Africa, has built deep relationships across the country that enable its divisions to set up productive partnerships and agreements. Its cement division has benefited from this capability, while ensuring the resilience of its supply chain through vertical integration from raw material sourcing to production and distribution.
Countries with middle income and strong institutions have aspirational customers that demand premium products and services, but need them to be delivered at lower price points. Cost leadership capabilities are thus critical, along with cost management and low-cost service and product provision. Companies can also succeed in these markets if they offer innovative technology, especially at the distribution level, to help keep prices low. The widely publicized success of Kenya’s Safaricom provides a powerful example. Safaricom pioneered the M-Pesa mobile money system, which uses a low-cost distribution network to enable subscribers to set up modest accounts with prepaid sums, then make payments out of the accounts via mobile phone. No traditional bank account is needed.
In countries in the other three categories — the middle-income markets with weak institutions and the low-income markets with strong or weak institutions — companies face more acute challenges. They need to be able to operate with limited infrastructure, less efficient and less transparent regulation, and less-skilled employees. A company going into any of these markets has to excel at crisis management, as well as end-to-end operations management that ensures self-sufficiency and operational resilience.
For the most part, companies enter these countries to extract resources, and mitigate risk as much as possible through agreements and contracts with the government, often supplemented by guarantees from multilateral organizations such as the World Bank. Other types of companies that have expanded in these countries are those highly skilled at building and operating every component of their business independent of external support. When the South Africa–based retail chain Shoprite built shopping centers in Uganda, for example, it essentially created its own infrastructure for its stores.
Think Global, Operate Local
Once a company has identified its target markets, it will need the right people on the ground to execute the strategy. In many of Africa’s labor markets, companies will have to develop talent with the skills needed to run their local operations.
They should start by embedding a core team of home-country experts to oversee the new business. The 170-year-old South African financial-services firm Old Mutual, for example, has subsidiaries in the southern, western, and eastern parts of Africa. In many of these regions, the company relies on a pool of expats with relevant qualifications and experience for such functions as actuary work, an area in which local talent is generally limited. These expats are selected as much for their cultural agility as for their technical skills, to ensure that they can connect with local employees.
It is important to invest heavily in skills transfer. This often includes both conducting on-the-ground training and bringing local employees to the home office to understand the firm’s culture and ways of working. After that, the challenge for many successful companies is how to prevent competitors from poaching their talent. They should develop compelling value propositions for local staff, including compensation above the market average, additional benefits such as pensions or housing, career development opportunities, and a sense of community.
Countries with middle income and strong institutions have aspirational customers that demand premium products and services, but need them to be delivered at lower price points. Cost leadership capabilities are thus critical, along with cost management and low-cost service and product provision. Companies can also succeed in these markets if they offer innovative technology, especially at the distribution level, to help keep prices low. The widely publicized success of Kenya’s Safaricom provides a powerful example. Safaricom pioneered the M-Pesa mobile money system, which uses a low-cost distribution network to enable subscribers to set up modest accounts with prepaid sums, then make payments out of the accounts via mobile phone. No traditional bank account is needed.
In countries in the other three categories — the middle-income markets with weak institutions and the low-income markets with strong or weak institutions — companies face more acute challenges. They need to be able to operate with limited infrastructure, less efficient and less transparent regulation, and less-skilled employees. A company going into any of these markets has to excel at crisis management, as well as end-to-end operations management that ensures self-sufficiency and operational resilience.
For the most part, companies enter these countries to extract resources, and mitigate risk as much as possible through agreements and contracts with the government, often supplemented by guarantees from multilateral organizations such as the World Bank. Other types of companies that have expanded in these countries are those highly skilled at building and operating every component of their business independent of external support. When the South Africa–based retail chain Shoprite built shopping centers in Uganda, for example, it essentially created its own infrastructure for its stores.
Think Global, Operate Local
Once a company has identified its target markets, it will need the right people on the ground to execute the strategy. In many of Africa’s labor markets, companies will have to develop talent with the skills needed to run their local operations.
They should start by embedding a core team of home-country experts to oversee the new business. The 170-year-old South African financial-services firm Old Mutual, for example, has subsidiaries in the southern, western, and eastern parts of Africa. In many of these regions, the company relies on a pool of expats with relevant qualifications and experience for such functions as actuary work, an area in which local talent is generally limited. These expats are selected as much for their cultural agility as for their technical skills, to ensure that they can connect with local employees.
It is important to invest heavily in skills transfer. This often includes both conducting on-the-ground training and bringing local employees to the home office to understand the firm’s culture and ways of working. After that, the challenge for many successful companies is how to prevent competitors from poaching their talent. They should develop compelling value propositions for local staff, including compensation above the market average, additional benefits such as pensions or housing, career development opportunities, and a sense of community.