South Africa SMEs should consider African expansion
At a presentation held recently at Henley Business School on 'Doing Business in Africa', Henley alumni Michael Creighton said that because most countries in Africa have different regulatory, business and cultural requirements, each country needs to be addressed individually.
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Companies looking to do business in Africa should not rush. Careful planning is needed and political connections are not necessarily helpful when selecting an 'on the ground' partner. There are a number of small 'boutique' specialists who can assist with investigating and setting up a new business. They tend to be more efficient and produce better results than some of the larger consultancies.
"Rushed investments can fail and regulatory requirements, sometimes quite complex, need to be properly understood. There are also infrastructural, logistical and political challenges that need to be considered.
"Business is approached differently across countries and when doing a due diligence it is not always possible to identify the softer issues such as culture and their way of doing business.
"In addition, our experience is that political connections are not necessary. If a company keeps to the regulations and operates morally, obstacles can be overcome. It may take longer, but it is the better route. In the long run business success is based on your product and how you deliver that product to the market, not based on who you are connected to."
JVs and location need judicious selection
Smaller boutique financial advisory businesses are emerging in Africa that have a wealth of experience and unique skills. They are usually owner run and produce good results. It is worth considering working with one of these smaller companies when entering a new country.
In his experience, joint ventures can be challenging, often with mixed results. "In Africa there are a number of private equity firms which provide an alternative way to partner."
It is also important to choose the location of the office carefully. For example, in West Africa many companies consider Accra, Ghana for their regional office because it is perceived as a 'nicer' city. However, Lagos, Nigeria, despite its challenges, is the financial centre of Africa's largest economy and therefore from a business perspective is often a better location. In addition, it is important to consider recruiting locals rather than sending expats to regional offices.
South African businesses need to expand their influence
"It is strange to see how smaller South African companies are complaining about low growth, labour issues and infrastructure problems and are very pessimistic about the future, when on our doorstep there are many African countries facing even more difficult obstacles but are still experiencing 5-7% GDP growth and presenting enormous business opportunities, especially considering their lack of infrastructure. There is also a growing middle class and large youth population hungry for a brighter future.
"We need to be more optimistic in South Africa. Very few SA-based SMEs operate in Africa. There are numerous SMEs from other countries operating in Africa or looking to operate in Africa, from Brazil, China, Europe, the Far East and other African countries, but very few from South Africa.
"South African SMEs are the best suited to understand the business challenges in Africa and need to look to Africa for expansion before it is too late. After all, South Africa is part of Africa and we should be viewing ourselves as African and not just as South African," he concludes.
