In a market share race in Africa, local and global companies vie to be first

Source : Boston Consulting Group

As multinational companies scale up their ambitions in Africa, they are coming face-to-face with local companies, many with capabilities better suited to African markets, according to BCG.

A battle for leadership is erupting in a variety of industries across Africa, with Africa-focused companies and multinationals vying for market share and each group counting on its unique strengths to gain an advantage, according to a new report by The Boston Consulting Group (BCG). The report, Dueling with Lions: Playing the New Game of Business Success in Africa, offers a concise analysis of Africa’s fast-changing competitive landscape and is beingpresented todayby its authors in Casablanca Finance City,an Africabusiness hub in Morocco’seconomiccapital.

The multinational corporations that have been coming to Africa are looking to tap into economic growth that has averaged more than 5% a year since 2000. However, for many of these MNCs, success has been limited. Several MNCs that have enjoyed top-line growth on the continent have nevertheless been losing market share and have been outmaneuvered by local companies, the report says.

“International companies are absolutely right about the long-term potential of Africa,” said Patrick Dupoux, a BCG senior partner and coauthor of the report. “The surprise that some of them have gotten is the quality of the local competition that has emerged. African companies have access to a local ecosystem of suppliers, customers, talent, and stakeholders that is beyond the reach of most MNCs. That makes these companies very formidable in certain cases.”

The report highlights several situations in which international companies have lost ground to local players in Africa. These market-share setbacks have occurred in industries as diverse as beverages, cement, cosmetics, pharmaceuticals, banking, and insurance.

Equally Skilled but Very Different

The competition between locally based companies and multinationals is not one-sided. Local companies, which the authors call African Lions, have four main advantages over MNCs, the report says. These advantages are the Lions’ single-minded focus on African markets; the greater experience their executives have operating in local markets; their management teams’ superior grasp of market data and intelligence relevant to Africa; and their fast decision-making and adaptability. The authors call these attributes Focus, Field, Facts, and Flexibility—the four Fs of the African Lions.

“These local companies are at home in Africa and know the markets intimately,” said Lisa Ivers, a BCG partner in Casablanca and coauthor of the report. “They are fast moving and entrepreneurial. They sometimes play by different rules. These are all factors that work to their advantage.”

Multinationals have their own strengths. Some of them have been in African markets longer than the local companies themselves. In some of these markets, international companies have been able to use superior resources, brands, platforms, and processes to keep Africa-headquartered rivals at bay.

Each group of competitors has something to learn from the other. For instance, from African companies, MNCs can learn focus—which comes from having highly experienced management teams in Africa and taking a long-term view. If MNCs are to improve their positions in Africa, they must show some of this same focus, the authors say, starting with moving to longer tenures for their expatriate executives.

For their part, local companies can learn from MNCs how to offer a more predictable experience to end customers, to their supply-chain partners and to their own employees. Local companies can also learn how to manage volatility from MNCs.

The Continent’s Bright Future

The report doesn’t ignore the challenges that Africa faces, including the steep drop in oil prices (a blow to Africa’s oil-producing economies), the still-high incidence of infectious disease on the continent, and the high-profile attacks by militant groups such as Boko Haram and Al Shabaab. But the authors say these challenges aren’t enough to undermine Africa’s positives, notably:

  • A big uptick in outside investment. In sub-Saharan Africa alone, foreign direct investment surged by a factor of five from 2001 to 2012.
  • Favorable demographics. Within a few decades, the proportion of Africans in the workforce will exceed the proportion of Europeans and the proportion of Asians who are working.
  • A more stable political environment. More than half of Africa’s 54 countries now hold democratic elections, compared with fewer than 10 in 1990.

Africa’s favorable economic and demographic trends explain why so many big-company CEOs now make Africa a destination in their travels.

“The question for many companies isn’t whether to come to Africa; it’s how to do it profitably,” said coauthor Ivers. “In the next few years, there’s going to be a lot of investing and partnering as companies try to figure that out.”

A copy of the report can be downloaded at www.bcgperspectives.com.