Strategies That Go the Distance in Africa

Africa Ariño offers internationalization do’s and don’ts

29/04/2015 Barcelona

Illust. Olalekan Jeyifous
A continent of contrasts: companies need to get to grips with local realities when doing business across borders / Illustration: Olalekan Jeyifous

In Africa, copy/paste strategies don’t work. This was a message that IESE strategy professor Africa Ariño heard time and again during a recent research sabbatical to sub-Saharan Africa. For companies wishing to expand their operations across the continent, quantitative data and statistical analyses are meaningless unless they go hand-in-hand with a deeper understanding and appreciation of the non-traditional factors that make growing a business there possible.

Writing in the latest issue of IESE Insight, Ariño shares the collective insights of the African business leaders whom she interviewed face to face, shedding light on the do’s and don’ts of internationalizing in Africa.

Mind the Gap

"The business leaders I interviewed understood that many of the challenges they faced boiled down to one thing: distance," says Ariño, explaining that distance must be understood in Cultural, Administrative, Geographic and Economic terms, in line with IESE colleague Pankaj Ghemawat’s CAGE distance framework.

So, rather than starting with the country next door, companies need to realize that the best market opportunities for their business sector may lie in less obvious places. Compatible legal, regulatory and institutional frameworks often count for far more than superficial similarities like speaking the same language.

For Nigeria’s Access Bank, the decision to enter Rwanda, for example, was largely due to the relative ease of obtaining licenses to operate there, even though entering another Anglophone country like Ghana might seem to make more sense than a Francophone one.

The "Toothpick Test"

Such counterintuitive moves only happen when business leaders learn to get away from the spreadsheet. Mitchell Elegbe, founder and CEO of Interswitch, related how he had hired consultants to compile a matrix to inform the company about preferred countries for expansion. But he found such a matrix can only provide a guide, adding that he preferred to go to each country himself to look for alternative indicators of business drivers and affluence that could foretell consumer spending – what he calls the "toothpick test."

Because good meat is relatively scarce in the diets of a certain segment of the population, those who can afford it use several toothpicks after dinner. "People use toothpicks as a way to show off," Elegbe observed. "Toothpick counts" per capita will not show up in any of the usual economic indicators, but it illustrates the need to get a feel of what’s going on in each country apart from official reports.

In Africa, this hands-on approach seems to yield far richer clues to make informed internationalization strategies, writes Ariño.

Focus on Social Impact

Besides developing a fuller appreciation of local factors – such as the strength of the informal economy – Ariño was greatly encouraged by how much the business leaders she interviewed made "social impact" and "social responsibility" core features of their business ethos.

As one African colleague told Ariño, "In the Western world, they say, ‘I am because I think.’ In Asia, they say, ‘I am because I become.’ In Africa, we say, ‘I am because you are.’ "

This focus on something beyond the self and beyond immediate gain translates into business strategies designed to benefit all parties. In addition to profit, success is defined in terms of job creation, community development, giving back to society and sustainability for tomorrow.

"Africa is full of surprises," says Ariño, "if aspiring business leaders would learn to look beyond the obvious and be prepared to grapple with complexity."

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Read the article "Strategies That Go the Distance in Africa".

You can access Africa Ariño's blog on African business issues here.