Four Things to Get Right in Fast Growth Markets
September 27 2013 by Jonathan Berman
As chief executives in the US scour the world for growth, they find the largest opportunities in some of the youngest markets. The fastest growing continent in the world is Africa, a two trillion dollar market where a third of the countries are growing at an annual rate of six percent or more. Here’s how to get one’s investment in fast-growing markets right.
Even as the IMF has reduced projections for growth in China and India, African growth estimates continue to hold. Companies like GE, Coke, SAB Miller and Diageo are obtaining their fastest growth in these markets, and increasing investment in them.
What are the traits that make those bets pay off? The most successful CEOs operating in Africa, both global and African display five traits that distinguish them from the executives who get burned in Africa and other fast growth markets:
Embrace uncertainty. Uncertainty characterizes Africa, and executives and companies operating there have to be comfortable with it. Jeff Immelt of GE has gotten used to it over three decades. “I’m an old global hand and I’ve seen how markets form so I have a broader tolerance for risk than most.” Jeff recalled an instance in which GE was faced with an inability to contractually secure land tenure in Angola, a problem that had held up a local joint venture for over a year. “I said to our people, ‘Listen, the opportunities in this country are great, so let’s just figure out the risk, and let’s go.’ If you insist on waiting until everything is understood, you will never go. Companies don’t do well in Africa because they can never get started. And there’s a thousand ways not to get started.”
Engage the society. Executives of U.S., European, Japanese, and even Korean companies tend to stay at a safe distance in emerging and frontier markets. In their work and especially in their social lives, they often set up pockets or channels of isolation. It’s comfortable, but from a commercial standpoint, it’s a death knell. Take it from Bharat Thakrar, who runs Scangroup, the largest communications firm across Africa. “You cannot do this thing of sitting in a board room,” Bharat says, “developing these plans, bringing expatriates to run the marketing for you. They put their kids in fancy international schools, have some fancy international lifestyle. You’ve got to go out there and find out what the hell is going on.”
Build what you need. Many companies have thrived in the U.S. and other mature markets by narrowing where they play on the value chain, and then excelling at that. That strategy often needs to be rethought in frontier markets where both the government and reliable private providers of critical inputs may be in short supply. Vimal Shah is the most successful agribusiness executive in East Africa (a market of 180 million people). His strategy of comprehensive vertical integration includes not only the full supply chain, but the supporting infrastructure. “Here an executive operating a company has got to know about the water, the power, the labor, where the people will stay, and security, “Vimal says. “If I were operating in the U.S., all of those would be a given. Where will labor stay? It’s a given. Power? It never goes off. Water supply? It’s always constant. Security, you don’t even have to worry about it. It is the state’s concern. Here you’ve got to do these things yourself. Your organizational capabilities have to be different.”
Tailor to local culture. Every company operating abroad has to adapt their practices locally. In Africa as elsewhere, it’s important to identify core values which can bend, but not break. Tom Gibian is the founder of private equity firm ECP, which has invested in companies from Algeria to Zimbabwe. Tom describes a conversation he has with nearly every potential investee. “There usually comes a moment in the discussion when you say to them, “Look, we know this is a unique environment. But we want you to know that, on topics like bribery or the value of our word, you’re talking to one company and we all share a single attitude. That’s just who we are, If we’re to do business together, it has to be who you are too.”
None of these attributes are particular to success only in Africa. But they rise above a throng of platitudes to become real guideposts for the companies and leaders who succeed in the fastest growing, toughest places on earth.
Jonathan Berman is the author of Success in Africa: CEO Insights from a Continent on the Rise, and a former partner at the strategy firm Dalberg. You can visit him at jonathanberman.net.