With growth stagnating across different continents, business leaders often look to new markets to find opportunities to grow their international presence and improve business margins. With its young and growing population that literally guarantees a high demand for consumer goods, rising middle class, growing GDP, improving infrastructure, and deliberate policy interventions to improve the ease of doing business across the continent, Africa represents an increasingly attractive destination for international companies.
While the continent offers significant growth opportunities and possibilities for international companies, several challenges can make Africa a daunting destination to even the most experienced business minds. According to the 2020 World bank Ease of doing business ranking, no African country is in the top 10 across the world, and only 10 (out of 54) African countries are in the top 100 globally. Therefore, business leaders need to adopt effective strategies to succeed in the complex, challenging yet promising African market.
For a successful foray into Africa, international businesses will need to adapt their strategies in response to the continent’s unique realities.
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Common challenges associated with doing business in Africa and how to overcome them
Any business that wishes to succeed in the African market needs to understand the challenges associated with doing business in Africa then design and develop paths to overcome them.
Organisations that can adapt their strategy in response to the challenges are better positioned to reap the rewards of expanding into Africa. Here are some common challenges that international businesses should be prepared to confront when expanding into the African market and the best ways to overcome them:
1. Africa is not a Single Entity
There are 54 countries in Africa; Understanding business etiquette and the culture of your target African country is critical. You need to consider the social norms, languages, belief systems, etc., and how this affects your business.
Language barrier is also a major factor to consider if you wish to do business in Africa. Some countries adopt English as their national language while others use French. In addition, each country still has African languages spoken based on region and ethnicity.
To succeed in a new African country, you need to know the primary language spoken in that territory. It would be best if you also double-checked that your product’s name does not have a negative connotation in the regional dialects and also tailor your marketing strategies to connect with the local consumer.
However, If you adopt a boots-on-ground approach, consider employing a translator to help your team integrate better.
2. Infrastructural Challenges
The level of infrastructure in Africa varies across different countries. Business owners’ major infrastructural challenges are electrical instability, poor internet connections, bad road networks, etc.
Apart from the nationwide deficits, infrastructural capacity also varies from cities to communities. Business leaders need to engage with partners who understand the countries’ internal realities and the specific regions to help guide the expansion strategy. Some companies that have established business in Africa, such as Coca-Cola, had to set up their own power-generating facilities and sewage systems. These extra efforts have helped the organisations run smooth business operations across the continent.
3. Political and social instability
Political and social instability diminishes the productivity of any business. Therefore business leaders need to evaluate the challenges associated with these instabilities thoroughly when drawing up market-development plans for Africa. Changes in government can lead to a withdrawal of licenses, variation in tax and payment structures, or new regulations that can affect international companies.
Before the expansion, business executives should conduct rigorous research (legal, financial, and reputational), to understand the political landscape and prevailing public opinion, and assess the risk of future instability appropriately. International organisations should also monitor and track changes in policies throughout the duration of their investment.
Business leaders should also seek to protect themselves from civil strife’s consequences by considering insurance options, negotiating contractual protections and exploring the possibilities of bilateral investment treaty (BIT) protection as part of their expansion strategy.
Africa’s Legislative landscape changes significantly and frequently; Excessive business regulations, complicated permit procedures, court impartiality and opaque tax assessment rules are among the major legislative issues that hamper business activities across Africa.
Africa’s primary legal system is also based on civil law, common law, or a mixture of the two. These law systems also vary significantly across different countries across Africa.
Alongside the primary legal system, African countries also have customary laws, national legislation, sanction regimes, international business laws, etc., which may vary from region to region within a country. When penetrating the African market, business leaders must carefully consider each of these laws, keep track of changes to these laws and implement the changes in their business activities.
As with any high-risk investment, international organisations should also plan for legal disputes and establish how to overcome them from the outset.
Over taxation is a significant challenge for international companies across Africa. Corporate tax rates vary considerably across regions. According to the tax foundation 2020 report, Africa has the highest average statutory corporate tax rate among all world regions, at 28.50 percent.
In many Sub-saharan African countries, the property tax rate is also very high; land taxes range from over 30% to less than 10% in Kenya. However, rates are relatively low in other parts of the African continent.
Africa also applies one of the highest average Value added tax (VAT) or General sales tax (GST) rates at 16%, second only to Eastern Europe and Central Asia, with 19% VAT, the global average VAT rate ranges between 11–14 percent. These factors should be taken into account when determining the market prices for goods and services.
6. Understanding Local Consumers
Any organisation that would successfully penetrate the African market must understand the values, needs, purchasing power and behaviour patterns of consumers in the local African market.
African consumers have varying buying patterns. Recent research reveals that some consumers tend to purchase frequently in small quantities. In contrast, others prefer to buy in extra-large sizes when they have the money to improve cost savings and minimise travel to retail outlets. A thorough understanding of this can help an organisation shape its packaging strategy to adapt to each market segment’s needs.
To consistently meet the African continent’s demands, Business Executives need to establish strong customer relationships and understanding by collecting and analysing as much data as possible on the buying patterns and purchasing power of the proposed market segment.
7. Keeping the supply chain running
A healthy, functioning supply chain is essential to sustain the day-to-day operations of your organisation. Without it, it would be challenging to meet the demands of the African market.
When expanding to Africa, business leaders must continually forecast medium to long-term best and worst sales scenarios and prepare for how these projections would impact the supply chain.
You should also maintain contact with a large and diverse network of suppliers and consider sourcing raw materials in the African market. In 2020, Heineken beer increased local sourcing of agricultural raw materials in Africa to 44%; this percentage is expected to increase to about 60% in the next few years.
International Organisations should ensure that there is always an alternative available if one partner fails to deliver raw materials for business processes.
While there seem to be numerous challenges of doing business in Africa, international companies that seek to penetrate the African market successfully need to consider creative ways to bypass these challenges.
4 Key Steps to Successfully Penetrate the African Market (Crafting Your Market Entry Strategy)
Although Africa presents huge potential growth opportunities, it can be a tough one to crack, and only the tough survive. Not every business expansion into Africa has been successful, but with the right expansion strategy and partner, you can achieve tremendous success in your business expansion plans.
Here are four steps to successfully penetrate the African market.
Select the Right Country
With 54 countries in Africa, deciding on which country to expand to can be a difficult task. Depending on your product, you may want to classify the potential markets according to the level of maturity of the customer markets and its size. It would be best to adopt a regional approach when expanding and leverage the regional agreements to reach neighbouring countries.
As stated earlier, It is important not to underestimate the language and cultural barriers. It would be best to look at your internal resources from a language perspective to determine the most favourable country.
Carry out Market Research
Carrying out a market analysis is crucial and should be prioritised. A proper market segmentation analysis will help you determine whether your services will be in demand in your target African market. Find out the average demand volume for your services and whether local businesses in the target market are already providing that service. Next, find out how big (or how small) the local market is.
A significant part of this research should also involve carrying out a SWOT analysis (strengths, weaknesses, opportunities, and threats). This will not only evaluate your competitive position but will also help you better define your overall strategy. You don’t necessarily have to do this yourself; you can partner with a reliable local company, such as African Ally, to carry out this research for you.
Localise Your Marketing Strategy
It is important to note that your current business model might not work with your new target market in Africa. Every African country is unique and requires different strategies. Develop a localised marketing strategy that aims to meet the target market’s unique cultural, economic, and government regulatory requirements. Your business plan needs to incorporate a localised approach while maintaining your business’s objectives. Build relationships with local partners in the African country and leverage their extensive network. Work with local subject matter experts to ensure your marketing message is culturally and linguistically appropriate.
Partner with a Reliable Local Service Provider
Foreign companies that wish to enter Africa’s market are at risk of unknowingly flouting local compliance requirements that can lead to adverse legal and reputational consequences. Partnering with local companies, such as African Ally, can be invaluable. Their understanding of the local terrain, laws, insight into the domestic consumer market, and partner network can give your business the required advantage that assures your success in Africa. They can help you mitigate the risks that come with expansion into the country. This strategy has been by far the most widely adopted by investors and heads of multinational companies operating in Africa.
The Support You Need To Succeed
When venturing into Africa, some support is vital to your expansion and can influence your business’s success. This support can be gotten from various local partners in Africa. However, some market expansion companies in Africa offer these services altogether. To expand successfully into Africa with ease, you will need the following:
A local Market Researcher and Advisor that can verify your assumptions:
They can provide reliable information about the African business environment, including salary benchmarks, cost of doing business, competition positioning, market size, relevant government policies, applicable waivers, and buyer preferences.
An International PEO to reduce risks of labour-related compliance issues:
They can design and draft employee contracts in compliance with local labour legislation, onboard and manage capable talent and fulfil all statutory remittances. You can also leverage their local network to expand with ease.
A partner that can support business incorporation, deal with tax and regulatory issues related to your business:
They can help set up your business locally while complying with local regulation. They understand the critical importance of compliance and the associated risk to your business expansion project.
A partner that understands immigration procedures:
They can help you secure relevant documentation and work permits that are compliant with immigration regulations including the processing of expatriate quota, entry visas, protocol services, and work permits, advising on immigration issues, and filing statutory returns.
A partner that can manage operational challenges:
They can handle challenges ranging from finding suitable office locations, logistics (e.g. travel), procurement, expense management, accounting, asset leasing, temporary financing, vendor management, and general administration.
Finding the right partners in key African countries with the right capabilities can significantly help your company mitigate the risks that come with expansion into Africa, but this can be a very challenging task for businesses. Click here to find out the top capabilities you should look out for to ensure you find the right partners for your business expansion into Africa.
A clear example of how the right partnership can aid market entry into Africa
A biotechnology company needed a quick and efficient solution to access African markets in order to expand its global reach and tap into new customer bases. This company wanted to move quickly while maintaining flexibility, they were not yet ready to invest the time and resources necessary to establish foreign entities in Africa.
The company needed a solution that would allow it to expand into multiple African markets simultaneously and was looking for a trusted partner to help with their expansion plan. The solution also needed to give their staff the ability to travel seamlessly to meet business objectives. While they already had employees in some African countries, they urgently needed to support an employee in Nigeria.
In order to fully explore its potential in the African market, they needed a partner that would allow it to compliantly support its employees in different locations in Africa. A partner that will provide clarity and afford it country-specific knowledge, support with compliance-related issues, and support throughout the expansion process.
After exploring a number of different service providers, The biotechnology company chose African Ally for its streamlined expansion services and its presence in over 16 African countries. African Ally was in constant communication with the company throughout the entire process, providing guidance on employment laws, country-specific statutory benefits, and was transparent about its capabilities in each African market.
Within a few weeks of the first contact, African Ally began supporting their employees in Nigeria and hired additional staff for them. The company got access to better benefits for their employees and their staff were better managed overall. Through continued communication and timely execution, African Ally helped their employees become confident that they were always supported. African Ally also provided visas for a number of their employees, as well as managed taxes, benefits, and payments in one currency.
African Ally’s suite of services offerings, and in-country knowledge afforded the biotechnology company the confidence that it could trust the advice and guidance the African Ally team provided. When expanding into other African countries in the future, they would turn to African Ally to solve any issues with talent acquisition and provide all the services that they need.
Conquer Africa With an Experienced Partner at Your Side
The need for a market-entry partner cannot be overemphasised, especially when it comes to the African international market. Leverage African Ally to provide the Trust, Convenience, and Ease you need to expand into Africa and achieve your growth ambitions smoothly. At African Ally, we take the burden off you and help you navigate the African business terrain without the associated newcomer risks; so you can hit the ground running and focus on what really matters.
If you’re ready to begin your African expansion journey, African Ally’s market entry services can help you establish a presence in new African markets in as low as 48 hours. With capabilities in over 16 African countries and a suite of African expansion services to assist you each step of the way, African Ally can help ensure your first step in widening your African footprint is a steady one.