South African companies face enormous challenges undertaking an international business expansion strategy into AfricaEmma
South Africa is strategically situated at the tip of the African continent, providing investment and marketing opportunities both within its borders, and to the rest of the African continent. It is the largest economy in Africa. South Africa offers investors a well-capitalised banking system, developed regulatory systems, an established manufacturing base, and abundant natural resources. Boasting a country size which is ranked 26th in the world in terms of population and GDP, South Africa has the world’s 15th biggest road network. It ranks in the world’s top 20 in terms of agricultural output. High standards of corporate governance ensure that minority shareholder interests are protected. The efficacy of corporate boards are ranked extremely highly compared to other countries. In its 2012-13 Global Competitiveness report, the World Economic Forum ranked South Africa second in the world for the accountability of its private institutions, and third for its financial market development, “indicating high confidence in South Africa’s financial markets at a time when trust is returning only slowly in many other parts of the world”. The country’s securities exchange, the JSE, is ranked among the top 20 in the world in terms of size. South Africa boasts a world-class and progressive legal framework and corporate governance environment. Legislation pertaining to consumer protection, commerce, competition, intellectual property and labour law ensures that the country conforms to international norms and standards.
Although faced with some challenges, South Africa boasts a well-developed economic, regulatory, social, and environmental environment, which, together with its potential for development and growth, is attractive to investors. As a result of this, many International companies are using South Africa as a “springboard” into what is sure to be the next big thing, Africa.
For many South African companies, future growth does not lie in expansion into other continents but rather into countries within the continent of Africa. Africa is set for exponential growth in the coming years and South African companies are perfectly poised to take advantage of this growth phase as mentioned above. Africa is the second largest and the second most populated continent which means South African businesses have massive growth opportunities right on their doorstep. Africa’s biggest resource is its people and if South African businesses can harness this resource and provide products and services that people want and need, chances of success are excellent and returns will be phenomenal.
The challenges of expanding operations northward are not that dissimilar to the challenges faced when establishing a business in South Africa – where factors such as the lack of infrastructure, job skills, communications, education and the lack of funding have a huge impact on operational success. However, if one can work around these challenges the opportunities and related returns are immeasurable when one considers that six of the twelve fastest growing economies in the world today come from the African Continent.
Highlighted below is a list of the more common challenges that face SA companies undertaking an international business expansion strategy into Africa:
Across the continent only 10% of individuals have access to electricity. This poses a major stumbling block for any expansion programme. However, this being said, there are a number of companies that are investing massively by providing needed infrastructure such as electricity and road networks.
Transport and road networks
The challenges experienced in creating a viable transport network that not only connects Africa with the world, but also within the continent itself, are many. Road development projects are challenging due to the topography and lack of funding needed to create these networks. Companies are realising the critical need for these networks and are investing heavily by either creating these networks or providing funding for these projects.
Telephony and communications
As strange as it may seem, telephony is still in its infancy stage in Africa. In juxtaposition to this, is the fact that the mobile telephony market is booming and is now substantially more widespread than fixed line telephony. The telecoms market in Africa is one of the fastest-growing in the world and companies are looking at providing greater broadband wireless access technologies as the key to making internet available to the greater population at large, in order to facilitate growth within the continent.
Lack of qualified and experienced business practitioners and executives
There is an evident lack of qualified and experienced business practitioners on the ground within many African countries. Most companies have taken to importing the necessary leadership talent to initiate and establish successful operations within these countries. Due to the similarity of the challenges that are present in the South African market, more and more international companies are utilising South African executives to set up operations throughout the continent, whether it be on a full time contract or on a project executive or interim executive basis. South African professionals have been operating extensively throughout Africa since 1994 and have gained invaluable experience. This experience is critical as operating in Africa is unique.
Companies recognise and acknowledge the huge growth potential that exists in conducting business and trade within the African markets but many are loath to invest in these volatile African economies. There are however, companies that are fully aware of the challenges that face SA companies when undertaking their business expansion strategy and they are able to offer financial assistance and funding with which to tackle these markets.
At the end of the day, expanding into Africa has many challenges, BUT if planned and executed correctly, the rewards far outweigh the challenges. It is not an easy continent to tame but if you embraces these challenges and look for solutions and surround yourself with an experienced management / executive team, your success will be almost guaranteed.
(Image credit: Atlanta Blackstar)