Currently on a research trip to South Africa and Angola meeting FSG clients and other international and local companies, I wanted to take a moment to share my latest insights (you can read Part I here):
After having spoken to various businesses in the last three days, a common theme I am hearing from the ground revolves around competition. While there is much talk in the media about competition coming from other emerging market companies, notably Chinese, Indian and Brazilian, the issue in Sub-Saharan Africa seems far more nuanced than that. While we are producing a major research piece on the topic in due course, here are a couple of initial observations:
- Competition from other emerging market companies: This seems to be particularly relevant in the technology sector where Asian companies such as Lenovo and Samsung are rapidly gaining ground. In the consumer goods sector, competition from other emerging market companies is less pronounced with the exception of Brazilian products coming into Angola and Mozambique, as well as South African FMCG companies spreading across the continent. For companies selling high-value products in the industrial sectors (for example machinery and trucks) competition from other emerging market companies seems less dangerous. That’s because overall, African consumers seem to be willing to spend more money for products perceived to be of better quality and having a longer lifespan alongside an adequate servicing infrastructure.
- Competition from other MNCs: By far the biggest threat comes from the same competitors companies face in developed markets. As the continent is becoming a more prominent business destination – approximately US$50 billion of FDI will flow into the region in 2013, which is more than 350% higher than a decade ago – more MNCs are moving in and competition is increasing. Now is the time to set up a local presence, gain rapid market share and a competitive advantage.
- Competition from counterfeit products: An often underestimated competitive threat comes from counterfeit products or trademark infringements. This impacts all sectors. While counterfeit products have undermined profits for many companies, it also has serious reputational implications if the counterfeit product breaks or even becomes a health hazard. This is a particular challenge in the healthcare sector.
- Competition from the grey market: A major threat for exporters comes from the grey market. As unauthorized distributors bring in products from neighboring markets to sell them at a cheaper price than the authorized distributor, the established distribution partnership suffers and profit margins erode.
Stay tuned for more valuable insights as I meet more companies on the ground…