Africa
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The Economist Intelligence Unit has said that international small and medium scale industries are yet to recognize the growth potentials in the African economy preferring to trade with other emerging economies
| By Maureen Chigbo | Dec. 8, 2014 @ 01:00 GMT |
AN in-depth study by the Economist Intelligence Unit, EIU, has shown that approximately 40 percent of global small and medium-sized enterprises, SMEs, do not perceive Africa as a growth opportunity despite the positive economic growth stories and growing middle class in the regions.. The EIU report conducted on behalf of DHL Express and entitled: “Breaking Borders: From Canada to China, Barriers Overshadow Growth for Expanding SMEs, revealed that while many multinationals and state-owned companies are actively taking advantage of the opportunities that Africa offers, SMEs still remain apprehensive and are choosing to trade with other emerging markets instead.
According to the study, which surveyed 480 SME executives and experts from business lobbying groups, SMEs are deterred by Africa’s low average consumer spend, cultural and infrastructure challenges, as well as inefficiencies such as corruption and political risk in the region. The quality of a target market´s infrastructure, the stability of its politics, administrative costs for establishing a local presence and cultural differences in doing business were all cited by the executives surveyed as factors that deterred them from entering new markets.
In terms of expansion tactics, the survey shows that partnerships are an important consideration for SMEs. The study identified a number of innovative approaches in this area, such as piggybacking on another company’s existing retail network to enter the sub-Saharan market in Africa.
Charles Brewer, managing director of DHL Express Sub Saharan Africa, said that despite current challenges to attract global SME interest, the findings of the study highlight the untapped potential that still exists in the continent. “The fact that SMEs expect to generate up to 50 percent of revenues internationally by 2019 is a massive positive and highlights the vast opportunities for Africa from an investment and job creation perspective,” he said.
He explained that overcoming different market environments is the biggest hurdle. “The unfamiliarity of foreign markets received particular attention, with 84 percent of respondents describing understanding a target market’s culture or language as important or very important in determining its attractiveness. This also explains why most SMEs often expand into markets that resemble their own.
“This is evident in Africa, as companies looking to expand into the continent, often make use of a ‘one size fits all’ approach. Due to the various cultures, languages and customs on the continent, vast amounts of research need to be done into each region, and the services and products need to be specifically tailored to each country. Africa is not one country,” Brewer said.
“A number of multinationals and corporates have experienced great success in Africa, DHL being a prime example. And the good news for SMEs is that they have the advantage of being more agile to adapt quickly and exploit the opportunities available. An entrepreneurial spirit is vital for the success of small businesses, we ourselves started out as an SME in 1969, and as they say, the rest is history. We too have focused on partnerships in Africa, and now have a retail presence of more than 3500 outlets across Africa.
“We work with thousands and thousands of SMEs across Africa and have witnessed how these businesses are able to successfully establish a presence in the region. With the support of the right partners, a well-designed supply chain, clear understanding of their competitive strengths and the right mindset, SMEs can break through any border and make the world their market,” he said.
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