Scaling up in Africa.
But unlike developed countries where the market is mature with high economic and financial infrastructure, emerging markets, especially Africa, have specificities that we have to examine to determine how efficiently a company or a startup can scale up in the African market.
"Scaling up" is to increase the size, amount, or importance of something, usually an organization or a process. We can then say a "scaleup company" is a company that already has a profitable and scalable business model and grows above 20% in either turnover or number of employees over a three-year period. Profitability and employment determine a scaleup, which is supported by an efficient business infrastructure.Given our developed world and fast-consuming society, the concept of "scaling up" is crucial to consider when starting a business, whether to develop your operations for a startup or SME or expand your operations for MNCs. This concept is of great interest to Africa, as one of the fastest-growing markets in the world. This affirmation is derived from the size and high demand Africa can offer companies worldwide. To produce and distribute their products, businesses must have a demand and be able to supply their customers. To survive, businesses need to make their production available to their customers, wherever they are. Thus, we can experience significant growth in startups and the expansion of well-established companies in Africa in a short space of time, which is due to many factors we have identified.
Scaling up is about a growing demand for your product, whose exposure results from our globalized world, mobility and fluidity of goods (emphasized by Amazon and Alibaba operations worldwide), and the evolution of technology (the transfer of technology), which have contributed to the accessibility of innovation worldwide. Any new product can be visible wherever it is manufactured. Scaleup companies are characterized by a good structure that enables them to uplift the scale of their operations. Thus, having a solid business infrastructure increases your operational efficiency. Due to the rapid growth a company can experience in Africa, having an efficient business infrastructure is a prerequisite for any business to scale up. In the 1990s, one of the first GSM companies in Ivory Coast experienced 10 times the level of customers expected over 3 years. Some African states are making improvements to their economic infrastructure (ports, roads, etc.) and business environment, which has impacted operations positively, thus attracting more foreign direct investments. According to UNCTAD’s World Investment Report 2023, published on July 5, foreign direct investment (FDI) flows stood at $45 billion, accounting for 3.5% of global FDI, and the number of greenfield project announcements rose by 39% to 766. Those factors have allowed companies to increase their productivity with available skilled labor (education has been significantly improved in Africa over the past 10 years). With infrastructures in place, finding the adequate technology to scale up must be according to your industry, which can be done via a network of partnerships or the implementation of new operations.
A company's production is according to demand, and Africa, with the youngest population in the world, shows a great market for innovative products.
The improvement of the business environment has created competition, like in developed countries (we are in an open market where anyone can sell to everyone; there is no worldwide monopoly but giant players per industry like Microsoft and Tesla; in Africa, we have Dangote, MTN, Naspers, UBA, etc.). As the Africa market experiences interest from investors, which has established a competitive market, having innovative products is not enough; the quality and price of the offering are also important. This is where technology plays a vital role. The evolution of technology brings quality; the picture of your iPhone 15 is far better than that of your iPhone 7. The emergence of TEMU, the online retailer with low pricing and good quality, shows that competition is always for the good of customers, as they can buy quality at a cheaper price.
China has been a game changer in the world, especially in Africa, due to their ability to produce more than anyone else with good quality.
Businesses intended to establish themselves in Africa must have an efficient business infrastructure to match the increasing demand for their products; otherwise, someone else will fill the void. This is why African governments have been working to improve their business environment and infrastructure to allow companies to scale up throughout their countries because the market is vast and appealing. The American giants Wal-Mart and Amazon establishing their operations in Africa denotes the level of business and economic infrastructure in place and the potential of the African market for your local and cross-border operations. The presence of major world companies desiring to conquer the African market shows the great potential that needs to be explored. But unlike developed countries, the market in Africa differs from one country to another; each country has its own specificity. For example, a food franchise classified as for the middle class in South Africa in Nigeria is set up as an upmarket product. Knowing the culture and perception of the people of a specific country is crucial in establishing a venture or selling a product in Africa, which needs not an educational background but experience on the ground to apprehend customer behavior.
A spread of African MNCs in Africa (Ecobank, Dangote, Shoprite, MTN, etc.) conquering their local and African markets is an indication that businesses can expand throughout Africa through cross-border investment. Africa, like emerging markets, is a niche market characterized by the uniformity of the offerings in the niche. But unlike developed countries where the market is mature and customer behavior is different from Africa, it requires companies to standardize their offers to comply with a highly regulated business environment. In Africa, a business can start by selling on the street without being registered as a venture, and an established business can be challenged by a startup offering less quality but a cheaper offering (the growing number of small retailers called "tuckshops" in South Africa demonstrate this statement)—it is not the product quality that makes customers buy from you but what is attached to your offer—you definitely have to take branding into account to determine how you want your product to be perceived. The concept of branding is detrimental to defining the niche where you want to position your company as a major player in your industry. Branding creates a culture that attaches your customers to your brand for as long as you keep supplying them with what they like. A good branding strategy can maintain your customers for generations, given the culture created around it. In some African countries, a pen is called a Bic (which is the first brand of pen appearing in the country), and a tooth paste is still called "Colgate.".
Africans like to identify themselves with what they consume, especially when it is part of their daily routine. Given the multiplicity of offerings from all over the world, having a good branding strategy can propel your product phenomenally and maintain your company's market share despite newcomers in your niche. You have to meet customer demand or come up with an offer that suits their expectations to breakthrough in any market around the world. That's why we say "customers are king." The good news is that in Africa, customers are very tolerant of the products they often choose to use, even if their expectations are not met. The reason is that when they have accepted the brand as part of their lifestyle, they stick to it until they have a better offer related to pricing—a product comes with a price acceptable to willing buyers. This is why your pricing model is a determinant in penetrating the African market, which in Africa is not related to the quality of your product unless you are a well-established brand. Your pricing must match that of your competitors, but with a view to not downgrade your brand, as the pricing is likely to be perceived as related to the quality of your product. When a business is established, usually companies want to break even, then conquer the local market to establish their footprints in their industry before embarking on cross-border operations, which is quite understandable in theory. But this waiting period can undermine the possibility of implementing new operations in other countries where your products are needed. Information is moving so fast that your offer can stimulate demand in neighboring countries. As an example, in 5 years, Ecobank has spread to over 5 African countries; spreading your operations fast in Africa is necessary to counter competition. Given the rapid spread of African MNCs like MTN and Dangote over the continent, embarking on foreign direct investment is inevitable for any company to grow faster in Africa, as expanding your operations beyond your border is a necessity to service your outgrowing demand in other countries.
The increase in demand for your product must be filled whenever, locally, you have already well established your business. So, having the required business infrastructure to scale up and the will to conquer new markets where the demand is responsive is one of the keys to expanding your operations throughout Africa, where the demand is similar. When your sales grow, you naturally have to produce more and expand your operations. This is where companies must rely on consulting firms that can be helpful in market research and ease their market penetration. The know-how of the specificities of the African market is crucial to coming up with the right offer. Having adequate business infrastructure to increase your productivity and an efficient supply chain are the ingredients to scaling up in Africa, with the spread in neighboring countries from your country of operation in sight. In this instance, we can establish that to scale up in Africa, your business infrastructure must enable your operations to service your local market and neighboring markets when there is an identified demand.
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