When Should African Companies Go Global?
This article was first published on https://untapped-global.com/
Should you take your company into a new market? While the advancement of technology and ease through which capital and data flows from country to country is redefining what it means for African companies to go global, the question of physically setting up in a new market has not become any easier.
We have seen some do it well. Take Jumia, an e-commerce platform that was the first African unicorn and ultimately the first African company to list on a major global exchange, which started in Lagos, Nigeria, in 2012 and has since expanded into 11 countries in the region. It is worth noting that Jumia has yet to hit profitability, so it remains to be seen just how much of a success its expansion has been. On the other hand, Woolworths, a South African retailer made a disastrous move into Nigeria in 2013 that saw it eventually close out its stores in the market and move out.
So, when should an African company look towards a new market? Untapped Global hosted a Clubhouse Discussion, ‘African Companies Going Global’ on Thursday, March 25, with key panelists Bob Skinstad, Keet van Zyl, Christophe Viarnaud and Alfa Bumhira. Here are the highlights from the discussion.
Have you completely exploited your local market?
What’s really important to keep in mind is that ‘global’ is not always the ultimate goal. You have to define your own metrics of success and go for that, whatever that looks like.
— Christophe Viarnaud, a Cape Town based early-stage investor and founder of AfricArena.
“Why do you go global? Because (in) some markets …. the total addressable market is either way too small or even nonexistent” — Keet van Zyl, Co-Founder Knife Capital.
If the local consumption and the size of the market is big enough to accommodate your growth plans, then it makes most sense to stay put and take advantage of that. Take Tokopedia — an Indonesian technology company that launched in 2009 offering C2C business platforms and has since expanded into other nexuses of e-commerce and digital services, venturing even into fintech! As of December 2020, Tokopedia reported about 100million monthly active users and over 9.7million merchants, all this accomplished from its Jakarta home base. If you have a lot still left to conquer in your market, then focus on your current market.
Where does it make most sense for you to be?
A huge motivation for expansion is to secure additional investment and with this in mind, it is worthwhile considering what locations would seem most attractive to your target investor base. It is the primary reason why Alfa Bumhira, the brains behind ProSpark, picked Singapore as the holding country for his enterprise. “When investors hear Singapore or Hong Kong, they want to invest”, he says.
However, it is important to also ensure that any moves you make do not alienate your main market. No matter where you move, it is important to stay close to your customer. If your largest market is in Kenya, it makes sense to keep most of your operations in Kenya. Go where you are most relevant.
Where is the regulatory market most favourable?
The biggest risk for me is to register my company in a country where everything is around the gray area, the regulations are not well defined, the data privacy laws do not even exist. That’s a big risk for us.
- Alfa Bumhira, CEO and Co-Founder of ProSpark.
Depending on the nature of your operations, government red tape or even the absence of regulation will determine how well your enterprise is able to function. Last month, the Central Bank of Nigeria banned cryptocurrencies only to backtrack a few weeks later- sending the entire industry into chaos.
Copyright and intellectual property protection are also not clearly outlined in every country, creating significant risk. It is important to consider these factors and weigh in on which markets are most welcoming. Furthermore, having the right regulatory environment for your business creates the right environment for investors, and could be instrumental in helping you raise funding.
Do you have an anchor country?
“It is not just as easy as packing things up…you need to understand how they are built and how they are different” — Alfa Bumhira, CEO and Co-Founder of ProSpark.
An anchor country is essentially a home base, where an enterprise is “from”. Making this clear from the start is integral to building trust in your target market. This is what has been key to driving Gojek’s success in Southeast Asia. Gojek is an on-demand multi-service platform with over 170M users throughout the region, with its home base being Indonesia. By branding itself as Indonesian initially, Gojek was able to rally support from the Indonesian community that saw it as something of their own that they should support. The company has since leveraged this to set up successfully in neighboring countries.
As you prepare to take on a new market, consider how clearly you have established where your home base is, and of what importance this will be to your target market as you expand.
What else drives you?
For those who are African American like me in the US, this connection to African entrepreneurship is a bridge to a greater economic justice.
— Wilmot Allen, Founder of VentureLift Africa.
For some entrepreneurs like Wilmot Allen, expanding to new markets is just not about increasing profit, but its also a chance to rebalance the ecosystem. They hope to create an economic bridge by connecting the diaspora network to local communities. In 2019, diaspora remittance to low- and middle-income countries overtook foreign direct investment, and while this is an incredible statistic, what these countries need more of is direct investment. Kenya recently launched a licensed investment fund, in an attempt to provide a convenient and safe channel through which the diaspora can invest back into the nation, and all eyes are on it to see how it performs and what this could mean for the region. However, there is no need for the private sector to wait! If this is a cause you are invested in, let it guide your decisions on which markets to expand to next.
With the listing of Jumia on the New York Stock Exchange, the conversations are shifting from can African companies go global to when and if they should go global. However, as Christophe Viarnaud, the founder of AfricArena, pointed out during the Clubhouse session, “global is not always the ultimate goal”. It is important for each founder to set their own ultimate goal and work towards that.