Solved: Business Market in Modern Africa
With a young, urbanizing population, abundant natural resources, and a growing middle class, Africa seems to have all the ingredients necessary for breakaway growth. Yet this tantalizing vision has remained just that—a dream.
A number of major business enterprises have recently left the continent, their leaders discouraged by the same obstacles that have confronted would-be investors for years: widespread corruption, a lack of infrastructure and ready talent, and an underdeveloped consumer market. -
Corruption: Corporations seek to invest in countries that pass a litmus test dictated by the company itself or by international agencies. In exiting Nigeria in 2015, Jan Arie van Barneveld, the CEO of the Dutch staffing firm Brunel, said, "We had the feeling that we were being constantly cheated and bribed." -Infrastructure: Would-be entrants cling to the view that investment should follow infrastructure -- that the World Bank and other international development agencies should provide access to electricity, roads, sanitation, and other shared services.
Lack of talented labor: A World Economic Forum "Future of Jobs" study laid much of the blame on the countrys tertiary schools for failing to feature adequate STEM-oriented courses and for omitting training in complex problem solving, critical thinking, and cognitive flexibility.
Undeveloped consumer market: Most multinationals still try to peg their efforts -- and fortunes -- to demographics, the emerging middle class. Tolaram Group The Tolaram Group was founded in Malang, Indonesia, in 1948.
In 1988, the year Tolaram began selling Indomie noodles in Nigeria, the country was far from an investment magnet. It was under military rule; life expectancy was 46 years; per capita income was barely $256; less than one percent of the population had a phone; only about half had access to safe water; only 37% had access to proper sanitation; and 78% lived on less than $2 a day.
But in these circumstances the brothers Aswani saw a huge opportunity to feed a nation. Indomie noodles can be cooked in less than three minutes and combined with an egg to produce a nutritious, low-cost meal. The vast majority of Nigerians had never eaten or even seen noodles. “Many people initially thought we were selling them worms.” Instead of focusing on the demographics that conventional wisdom suggested, they focused on creating a market.
In 1995, to control the costs of its operations, Tolaram also shifted noodle manufacture to Nigeria. It had to pull infrastructure, such as electricity and water, into its operations. Singhal says, “I run a food company, but I know more about electricity generation than food.” Tolaram is in the education business as well, recruiting top graduates of Nigeria’s schools and providing training in engineering, finance, and other disciplines. Where some multinationals might push expatriates into an emerging-market assignment, Tolaram pulls its leaders from Africa.
The company’s investments did not stop there. Nigeria, like many other emerging and frontier markets, has no thriving formal supermarket sector, and the path from factory to consumer contains many potential points of shrinkage. So Tolaram’s managers chose to invest in a supermarket supply chain that began with company-owned trucks and expanded to include distribution warehouses and storefronts. Wherever they identified product “leakage,” they pulled honesty into the business, taking ownership of that point rather than working with external partners and processes.
They didn’t try to push honesty by hiring more police officers, who are often easily corrupted. Upstream, the company also had to provide almost all its inputs, because suppliers either couldn’t meet quality or cost standards or didn’t adhere to contracts. As a result, Tolaram now controls 92% of the inputs for Indomie noodles and operates 13 manufacturing plants in Nigeria, many of which supply those inputs. Today the company sells 4.5 billion packs of noodles in Nigeria annually.
It owns and operates more than 1,000 vehicles for logistics, directly employs more than 7,500 people, has created a value chain with 1,000 exclusive distributors and 600,000 retailers, and has revenue of almost $1 billion a year while contributing approximately $100 million in tax receipts to the Nigerian government exchequer.
Finding Opportunity in Non-consumption The most essential trait shared by the market-creating innovators the authors studied is their ability to target non-consumption and to develop solutions that can meet it. They look for what isn’t being consumed. We have identified four strategies: Spot the “struggling moment.” Consumers may lack a solution that will allow them to meet an important need in an affordable, accessible manner.
Perhaps their own inertia or attributes of the existing solutions create anxiety or even fear. Spotting these markers through ethnographic research or field observation is one of the most effective ways to discover non-consumption. Be alert to work-arounds. When consumers lack affordable, accessible options, they create work-arounds, or “life hacks.” Africa overflows with these, because many conventional products and services are simply too expensive for most people.
For example, the work-around that consumers had devised to compensate for a lack of refrigeration involved the traditional clay-pot cooler and the deeply entrenched habit of daily shopping and food preparation The Indian conglomerate Godrej created a low-cost refrigerator, chotuKool, which is compact, powered by an innovative cooling technology and a rechargeable battery, and costs a fraction of what conventional refrigerators do. It has been pulled into tens of thousands of households and small businesses that are beyond the reach of reliable electricity.
Learn from law bending. Perhaps the most extreme form of work-around is the low-grade, “penny ante” law bending. Such behavior is a reliable signal that a significant, recurring consumer need is going unmet. From constructing illegal temporary structures to selling goods at pop-up stores on the sidewalks of many African cities, this behavior is easy to spot—and it’s a highly reliable indication that a legal, affordable alternative would be welcome. Identify abundant or slack resources.
The current sharing economy is built on the capture of such resources, with familiar examples in housing (Airbnb) and transportation (Uber and Lyft). Tolaram harnessed Nigeria’s plentiful wheat and spices to manufacture Indomie noodles and spotted the plentiful talent among top graduates of the country’s schools. Homework Ch. 7: Strategies for Competing in the Markets of Developing Countries (SWOT)
1. Outline the opportunities and threats modern Africa holds for doing business there. Consider competitor (major business enterprise) weaknesses as creating opportunities as well and include them in your analysis.
2. The text suggests that would-be competitors (major business enterprises) have failed in Africa while Tolaram, an Indonesian MNE, has succeeded. Outline below the opportunity and the strengths that made Tolaram successful in this international diversification effort.
a. What market opportunity and native resources were in place in Nigeria that Tolaram recognized and developed but competitors did not?
b. What resources did Tolaram create that were not there?
c. To perform a. and b. above, what additional resources did Tolaram likely possess?
3. Which of the five options for entering foreign markets did Tolaram pursue?
1. Maintain a national (one-country) production base and export goods to foreign markets.
2. License foreign firms to produce and distribute the companys products abroad.
3. Employ a franchising strategy.
4. Establish a subsidiary in a foreign market via acquisition or internal development.
5. Rely on strategic alliances or joint ventures with foreign partners to enter new country markets.