Egypt is committed to rebalancing its economy, through its IMF reform program, prioritizing infrastructure, energy, health and education development, and implementing business-friendly regulations. These reforms are structurally changing the business environment, and while this better positions Egypt for sustainable growth, it also puts pressure on commercial performance of multinational companies (MNCs) and their distributors.
To succeed in Egypt’s new environment, MNCs need to increase their competitiveness against local and emerging market brands, get closer to their end-customers, enhance their sales effectiveness, and manage a more volatile cost base. In many cases, MNCs rely on local distributors for all or many functions of their business in the market, so succeeding in Egypt requires the distributors to also adapt and implement new strategies to overcome the changing market landscape.
However, there are four primary factors that are driving an evolution in Egypt’s distribution landscape, requiring MNCs to change how they manage their distributors to ensure better commercial performance from them – rising operating costs, changing customer behavior, intensifying competition, and expanding infrastructure development. These drivers raise three questions for executives regarding their distribution management in Egypt:
- How can we ensure our distributor(s) help our brand to get closer to our end-customers?
Egyptian customers – consumers, businesses, and the government – are shifting their purchasing habits as the economy evolves. Rising living and operating costs, lower purchasing power, low real wage growth, and high interest rates are fueling long-term price-sensitivity. Customers are looking for better deals, cost-saving solutions, and more value for their money. Shifting purchasing behavior requires MNCs to get closer to their end-customers to firstly understand how their value perceptions and purchasing preferences are changing and to devise better pricing strategies, adapt their sales pitches, and to get ahead of competition, especially with lower-cost emerging markets brands increasing their investments in Egypt.
To get closer to their end-customers, MNCs can improve their distributors’ capabilities. Many MNCs evaluate their distributors on traditional commercial metrics or view them simply as a logistics provider, so distributors lack the capabilities to establish closeness with the end-customer on behalf of the MNC. MNCs can get closer to their end-customers in a cost-effective manner by transferring a wider variety of functions to their distributors and developing the capabilities for the distributors to carry out those functions. For example, MNCs can use their distributors to collect customer insights or deliver value-added services, which will help MNCs adapt their product offering to customer behavior and stand out against competition.
- How can we align our distributor(s) on our strategic vision and priorities?
With Egypt as a priority market in the MENA portfolio, many MNCs are increasing their investments in the country to capture its long-term potential. However, their distributors may not currently share the same investment propensity. Rising costs leave distributors with squeezed margins, making them hesitant to invest in their businesses and can also lead to compliance issues as distributors look to save at any cost. Additionally, high interest rates make it difficult for MNCs to motivate their distributors who may prefer easy returns from leaving their capital in the bank.
To engage their distributors in Egypt’s complex economic environment and better align on strategic priorities, MNCs can adjust their distributor incentives. To improve distributor performance and alignment, some MNCs implement a status-based reward program in which distributors are evaluated on relevant key capabilities in a quarterly scorecard, and are then given a partnership status that comes with perks or consequences based on the level. MNCs can also tie margins to distributors’ discrete behavior, like attending trainings on pricing, for example. MNCs can clearly communicate to their distributors that their evaluation will not only include financial results, but also other non-P&L criteria, such as investing in physical or human assets, or developing capabilities.
- How can we improve our market reach?
Sisi’s administration is accelerating investments in infrastructure development by building new cities, like the New Administrative Capital, creating economic and industrial zones, and improving roads. While progress will be gradual, the expansion in infrastructure mean that new industrial and retail spaces will open up outside traditional urban areas, and new customers will emerge, especially in the new economic and industrial zones. As Egyptian consumers display price-sensitivity, certain retail channels – such as discounters – will gain more significance. Meanwhile, the public sector’s goods and services needs will increasingly differ across governorates as public investment locations expand and certain reforms, like the universal healthcare act, is implemented gradually across the country.
To improve their market reach, MNCs can enhance their indirect channel designs. MNCs need to ensure they have enough manpower to access new customers and new geographies, so some companies found that investing in small sub-distributors helped them achieve this reach. Additionally, MNCs can work with their distributors to devise effective strategies to work with discounters, which will likely grow their presence in Egypt because of lower purchasing power following the devaluation. MNCs need to ensure their distributors are actively seeking new customers, geographies, and are focusing on the right customers and retailers to enhance overall market reach.
Executives need to ensure their distributor management addresses Egypt’s current economic challenges and also capitalizes on growing opportunities in the market. While the Egyptian market has its specific qualities, the current business challenges are not necessarily unique; Egypt executives can bring in best practices from other emerging markets that have experienced similar challenges.
FSG’s extensive research on distribution management in emerging markets shows that MNCs that manage their distributors using repeatable frameworks and workflows focusing on distributor capabilities alongside financial results significantly boosts commercial performance. For more details on how Egypt’s distribution landscape is changing and how best in class MNCs are adapting their distribution management, FSG clients can refer to Distribution Management in Egypt.
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