MNCs in Sub-Saharan Africa (SSA) are having to adjust their expectations, and re-think their strategies – and in many cases, their business models – to succeed in the region’s complex environment. Although Sub-Saharan Africa is the third-fastest growing region globally (and the second-fastest, if you exclude Nigeria and South Africa), changing market dynamics are causing major shifts in customer demand, forcing MNCs to reconsider their value propositions.
At the same time, operational challenges ranging from FX shortages to regulatory changes are requiring SSA executives to make difficult decisions. Many executives are managing expectations from headquarters, which were in many instances set during the pre-commodities slump period, when double-digit growth figures went hand-in-hand with the “Africa Rising” narrative.
These were some of the strategic issues raised by the 26 executives who attended Frontier Strategy Group’s roundtable breakfast in Johannesburg last week. Representing an array of industries, from consumer durables, FMCG and technology, to healthcare and industrials, they are all seeking to grow by tapping new markets and customer segments, while re-thinking (and in some cases, radically restructuring) their product and route-to-market strategies.
Most MNCs believe SSA markets still offer opportunities:
- Long-term prospects underpinned by fundamentals are central to how MNCs are prioritizing SSA markets. Kenya, which ranks highly on FSG’s Resilience Index, featured as the market executives believed offered the greatest growth prospects, as well as the market where they would direct their largest investment in 2017. Nigeria emerged as the market posing the largest risk to overall SSA performance, which is unsurprising given its challenges, as well as its size and share of most SSA portfolios. Nevertheless, no MNCs said they were exiting Nigeria, indicating the market still offers opportunities in under-penetrated segments.
- Headline figures for several tier two ‘frontier’ markets remain compelling. This is evident in how executives at our event viewed Cote d’Ivoire. 25% of MNCs planned to enter Cote d’Ivoire for the first time in 2017, with another 25% planning to expand their presence there. Meanwhile, 10% of MNCs at the event considered Ethiopia promising, due to its strong headline growth, though its relatively closed economy and low average incomes mean it is only suitable for certain types of companies, for instance ones in the FMCG sector.
Across SSA, demand drivers – affecting governments to businesses to consumers – are shifting as a consequence of economic flux, making many customer types more price sensitive and demanding. This is forcing MNCs to tailor their products and services to better align with changing customer needs – reflecting the growing importance of sophisticated customer insights capabilities – while also refining and expanding their route-to-market approaches.
To achieve this:
- MNCs are adjusting their product lines and market positioning. The most important levers MNCs are using to capture evolving demand profiles are their product mix and positioning in the market. For example, for FMCG this may involve introducing premium lines to attract wealthy consumers (a relatively resilient segment), or stripped-down versions that allow financially-squeezed customers to trade down, though for the latter offering value for money appears to be more important than simply lower price points. Meanwhile, B2B and B2G-focussed companies’ offerings increasingly are providing solutions tailored to specific problems, often as part of an extensive package, rather than as off-the-shelf products or services.
- They are also leveraging novelty, based on still-strong customer appetite for goods from abroad. Nearly half (45%) of MNCs at our event believed it is important to bring in innovative new products to keep pace with changing demand trends. This holds true even where MNCs are localizing production (itself usually a tactic to circumvent FX problems or capitalize on low-cost local labor). Nevertheless, many MNCs are making product adaptations, notably around packaging, to better suit local retail environments or logistics challenges.
- MNCs are trying to upgrade their channel management strategies to better understand and capture opportunities. In most cases, this involves investing heavily in their sales presence through an expanded network of distributors, though a few firms are also going direct. Local distributors’ inadequate skills pose a major hurdle to MNCs’ ability to implement strategy, however. 24% of executives said that among channel capabilities, business development skills are the ones that can have the largest impact on their ability to hit 2017 targets.
Clearly, a strategy of ‘business as usual’, even with some adaptations, will prove inadequate in SSA’s post-commodities boom reality. MNCs that succeed will be those that couple a longer-term view with agility in their ability to course correct, while successfully tailoring their product and channel management strategies to the region’s increasingly complex macro environment.