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Sluggish local economy impels SA companies to expand into the rest of the continent

Article by Griffin Advisors

A tough trading environment in South Africa is motivating more and more companies to seek work and set up operations cross-border. The belief that expanding into Africa is only for large corporates has long been dispelled by numerous small- and medium-sized companies that have successfully taken their businesses into Africa. For many, the driving force is to offset sluggish local conditions where depleted order books and diminished margins and profits have placed a strain on business owners. And conditions are likely to become even more challenging.

While South Africa’s economy stagnates, projected economic growth in Sub-Saharan Africa of 4 per cent in 2016 and 4.7 per cent in 2017 is providing added impetus to South African companies to trade into growth markets. Moreover, demographics point to a growing middle-class in the region that has new-found disposable income. The effect of this is best illustrated by the rapid growth of mobile broadband use and data traffic. Forecasts suggest this will increase 20-fold by the end of the decade. Given the regions prospects it would be short-sighted for any marketer to ignore the fact that the 974 million people living in Sub-Saharan Africa need to be fed, clothed and entertained.

For some companies however, the decision is not based solely on difficult trading conditions at home. One medium-sized South African company that manufactures fixtures, fittings and counters for the retail sector has followed its clients, mostly large retailers, into Sub-Saharan Africa as they open new stores. ‘The benefit of dealing with an existing client is that an element of trust and confidence already exists; however, with that comes an expectation that you can deliver and perform just as well in a different country as you can back home’ says the company’s Manager for New Market Development. ‘This really tested our resourcefulness, particularly in providing after-sales service. We were hard-pressed when it came to clearing our containers through customs and making sure we could carry out installations in time for store openings. Thankfully we had an exceedingly competent local partner to oversee the process,’ he adds.

Making the decision to trade into Africa should not be seen as a tactic of last resort to counteract a downturn in local trading conditions. Each country (market) has its own peculiarities which need to be understood. One cannot adopt a single template which may work in your home market, and expect it to work elsewhere. Many small- and medium-sized companies do not have the requisite skills to prepare and implement market entry strategies. Researching and selecting target markets, deciding on how best your company should be represented, establishing new supply chains and ensuring compliance with licensing and business regulations to get an operation off the ground, are some of the challenges facing companies looking to do business on the continent. In this regard the value of using outside experts with in-country experience and contacts cannot be downplayed.

Fidel Jonah, Executive Director at Griffin Advisors, an independent advisory firm that assists and partners with companies seeking to expand into Africa, advises: ‘An option for SMEs seeking to expand into the rest of the continent is to partner with reputable individuals, firms or service providers with an existing network of in-country contacts, local knowledge, market credibility and a record of success. Their chosen partner should be capable and prepared to hand-hold them through their expansion and growth process.’

Whatever the motivation, the decision to enter a foreign market cannot be taken lightly. And for those that embark on the journey, expectations should be realistic. It requires skills, stamina and a good deal of patience.

Griffin Advisors are proud Partners of the National Small Business Chamber (NSBC).