The article “The Globe: Cracking the Next Growth Market: Africa” talks about the growing awareness of significant business opportunities in many African countries in the next coming years. Ever since the 2010 FIFA World Cup took place in South Africa, economists and executives all agreed that Africa would be the next big emerging market. However, companies have been hesitating to enter this new market due to undiversified production structure, low human capital, poverty, famine, and disease afflicting many nations. Perhaps the most concerning issue is the lack of good leadership and robust governance. More importantly, companies are aware of the fact that some promising countries present the highest risks. Despite all the challenges Africa is facing, a recent study about African consumer market conducted by McKinsey & Company has provided surprise findings. The continent is now among the fastest-expanding economic regions.
Its real GDP grew by 4.7 percent a year over the past decade. Despite the global recession, Africa’s economy is growing. In 2008, Africans spent more on goods and services compared to Indians or Russians. Opportunities are opening in sectors such as retailing, telecommunications, banking, infrastructure-related industries, natural resources, and the agricultural value chain. With consumer demands high and with few foreign companies present at the moment, competition is less intense, and Africa is definitely the new land of opportunities. However, getting familiar with statistics and legal issues in Africa is only the first step to set up the foundation of a successful business. Investors and foreign companies need to find the right strategy in order to reduce potential risks. One of the suggestions is building relationships with locals who understand future consumers so that companies would be able to forecast demands, as well as establish training programs to develop new talents.
As manufacturing in China is facing many environmental issues along with the rise in labor costs, companies are under pressure to look for new regions to operate business since other Asian tiger countries are dealing with global recession. This is a perfect opportunity for Africa to become the next low-cost manufacturing region. It requires effort, investment and a well planned strategy in order to achieve the goals ahead. One of the priority challenges is transportation costs. Moving manufacturing to Africa, companies need to find a way to keep costs to minimum while maintaining standard quality for products and services.
Moreover, consider all the issues companies are dealing with manufacturing in Asia, such as environment, which affects products’ quality, or the rise in labor cost; they will face the same risks in Africa. But there is a fundamental tradeoff between high risk and high return. As the article addresses, there is not much competition in Africa at the moment, therefore, companies will have more advantages to explore the opportunities. With its richness in natural resources, Africa has attracted many foreign investments. For example, China is the major oil consumer. In the meantime, India has been investing in the telecommunications sector. China’s and India’s investments have played an important role in the current grow in Africa. Not to mention Brazil, the fastest-growing economy in the world is also looking to partner with several African countries.
Many economists compare the continent as China in its late 1970s. Africa is undergoing a transition and it can take this opportunity to follow China’s success by requesting training programs when doing business with Chinese companies. As mentioned in the article, I believe one of the most important factors to successfully enter the African market is understand consumer needs. This will take time as it took Proctor & Gamble 10 years to build a dedicated supplier distribution network and to be successful in the Nigerian market.
Once companies learn their consumer behavior, they can provide excellent products and services, and in the future, they would be able to influence buying decisions. With a huge potential to grow, the African market is dynamic, changing and evolving. Despite some challenges in physical infrastructure, security, and governments, things are improving in Africa. Some national governments such as Ghana and Senegal are taking actions by focusing in improving their industrial structures. Besides the rich natural resources, other sectors such as retailing, telecommunications, banking, and infrastructure-related industries are also the key factors that will contribute to the growth of African economies in the next decade.