By Stacey Mattish
Africa offers a billion-dollar consumer number that many companies are eager to access, yet entering and expanding into Africa’s Sub-Saharan region can be far more challenging than attempting the same feat in either the United States (U.S.) or Europe. OnFrontiers’ expert Alissa Orlando, the Founder and Managing Advisor of Dynamo Advisors in Kenya, has spent over two years in Africa learning how to successfully navigate the challenges of breaking into new markets. Before going to Africa, Alissa worked with McKinsey & Company as a business analyst. She then joined Jumia Food in Rwanda as Managing Director, and later worked for Uber as the Head of Operations, East Africa. Currently, Alissa seeks to help both local and international companies develop a business strategy that will allow them to successfully operate within the African marketplace, and she has taken some time to share her insight.
When developing a successful business strategy, companies need to focus on building a strong business based on strong financials. One of the main obstacles businesses face when trying to either enter or expand within the Sub-Saharan market is finding the proper price point. International companies seeking to enter soon discover that the cost of doing business in Africa is far different than in a more industrialized country. The purchasing power of the consumer within the target market is what limits a company. Within Sub-Saharan Africa, the purchasing power is lower than in the U.S. or Europe, but the cost of doing business is higher because of less automation and the cost of logistics. Finding the “sweet spot” can be extremely tricky.
For technology platforms that are commission based, the solution to finding the price point is to figure out what the real costs and real profit margins are for suppliers and what customers are willing to pay for the added convenience. Another way to help determine the price point is to look at the competition. Who else is occupying this space, and what are they charging? Offline companies probably have fewer players in the market simply because of the difficulty in logistics and automation, so looking at the competition can be an extremely helpful tool. For software companies, it’s a little trickier. Local software companies have to compete against international ones, making it difficult to develop a distinct competitive advantage.
The second major hurdle companies will face is with regards to expansion. Companies must remember that Sub-Saharan Africa is made up of many different countries even though it is one continent. Unlike the U.S. where crossing state boundaries is relatively simple because of federal laws, each country in Africa has its own laws and regulations. A company that wants to expand into, or enter the market of, another country must begin by understanding the laws and regulations of the target country. Then, relationships with key regulatory officials must be developed, and people who understand the local market conditions must be hired.
If companies will focus on building their business on strong financials rather than telling a compelling narrative, they can succeed and capture part of the market. Using a third-party company that understand the laws, people, and customs and can help develop the necessary relationships actually becomes a great asset to those seeking to expand. Strong companies will translate into strong economies across Africa.
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Check out a related blog: Rwanda: The Benefits of Engaging a Small Country with Big Dreams.