How companies can overcome Africa's five great challenges

How companies can overcome Africa's five great challenges

While many hurdles in Africa are similar to those in other emerging markets, our research shows that five are more pronounced, requiring Africa-specific solutions.

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How companies can overcome Africa's five great challenges

This article originally appeared in The Economic Times: Corporate Dossier

Heineken beer is sold in more than 170 countries, but when the world's third-largest brewer does business in Africa, it knows it needs to play by some different rules.

In Africa, Heineken operates breweries and also has its own power and water treatment plants. That's how the company overcomes a major African obstacle: weak infrastructure. Heineken has learned that, while Africa poses substantial operating challenges for consumer products makers, they are not insurmountable. And finding innovative ways to clear those obstacles can pay off.

While many hurdles in Africa are similar to those in other emerging markets, our research shows that five are more pronounced, requiring Africa-specific solutions: an underdeveloped infrastructure, a disorganized and fragmented retail landscape, a lack of reliable market research, unclear and ever-changing government regulations and a limited talent pipeline.

Because Indian companies face a number of similar challenges at home, they are well-positioned to rely on their domestic experience to tackle Africa's obstacles. We've identified a range of effective approaches that can help companies navigate this thorny landscape in Africa.

Be creative to bypass Africa's poor public infrastructure, reduce operating costs and innovate to compensate

Successful companies develop strategies to invest in their own reliable support systems when necessary and to offset the additional expenses. They buy power generators, build water tanks and occasionally pave roads.

They remain competitive by balancing the high costs of infrastructure solutions with rigorous cost and cash management. Sounds familiar, doesn't it? To reduce its reliance on fuel, Bharti Airtel has invested $10 million in Malawi to build a green energy-powered network which, in the medium- to long term, will also cut costs and conserve the environment.

Another creative infrastructure solution: product innovation. Promasidor, an African dairy, beverage and food enhancement company, developed Cowbell, a milk powder packaged in sachets, in which they replaced animal fat with vegetable fat to give it a longer shelf life, thereby diminishing the dependency on a cold supply chain.

African children put the powder directly on their tongues, to overcome obstacles about finding sanitary water. Promasidor is now a leader in Nigeria's powdered milk market.

The poor infrastructure also results in an uncertain supply of raw materials. Leaders surmount this by building strong supplier relationships or by becoming vertically integrated to stockpile critical materials.

Develop multitiered models to route products to market

The vast majority of consumers in Africa still buy from small stores, hawkers, and "spaza shops" (run out of homes in South Africa). While modern retail is growing, it's still a fraction of the formal retail landscape.

To accelerate market coverage, many companies establish a network of trusted third-party distributors and wholesalers, teaming their own salesforce with distributors to ensure a measure of control.

Some companies collaborate with traditional outlets directly to increase sales and improve distribution, and in the process, professionalize the way shopkeepers work.

Marico launched a program in Egypt aimed at developing its relationship with suppliers and distributors and improving their communication skills, as well as in sales and management techniques. Such programs enabled it to maximize its outreach to consumers through its trained associates.

In some categories, players bolster sales by encouraging unauthorized sellers to formalize their businesses. Brewer SABMiller helped illegal taverns in South Africa convert into licensed outlets, transforming off-the-books sellers into a thriving new retail segment.

Gain a competitive edge by compiling your own information about Africa's consumer or trade landscape

There's a dearth of data about Africa's diverse consumers and its retail environment. Leading consumer packaged goods makers gather their own information instead of depending on not-so-reliable data from some public research firms.

Olam, a global leader in agricultural products with a packaged foods business in Africa, is investing heavily to analyze the extreme differences among West African consumers, helping it tailor products to local needs and identify possible categories for new growth.

Partner with local stakeholders-governments, businesses and communities-to build credibility

Market leaders collaborate with local business networks to deal with a business environment often hindered by bureaucracy, corruption, ever-changing regulations, as well as multiple currencies and protectionist measures.

To earn the right to influence local agendas and effect change, market leaders in Africa appoint local business leaders to their board of directors, get listed on the local stock exchange and invest in community development.

NIIT, India's IT training pioneer, works with a local government in South Africa to help students develop vocational training skills and also finds them internships in India.

Out-invest in recruiting, developing and retaining local talent

Africa's shortage of skilled professionals is mainly due to the population's low education level and a troubling brain drain of highly educated workers.

Leading companies make a substantial commitment to create a rich talent pipeline. They leverage their corporate reputation, brand strength and presence. Some companies also launch graduate recruiting and training programs and provide clear career development paths.

They ensure that salaries are correctly benchmarked not just against local competitors, but against companies in other fast-growing sectors that could raid their talent. Several Indian companies have moved sensitively to handle employees of firms they have acquired in Africa.

When Godrej faced workforce resistance over the change in management during its acquisition of South Africa's Rapidol in 2006 and Kinky in 2008, it set up provident funds for its new employees with an employer contribution — not a requirement in the country — and invested in growing and retaining talent.

(The authors are with Bain & Company)

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