Big is not necessarily always best. Smaller countries or cities in Africa should not be discounted when preparing an African expansion strategy, as they could end up being a bigger opportunity in the long run.
Countries with large populations and the biggest economies are the first ones considered by brands or manufacturers for market entry or geographic expansion. In Africa, South Africa, Nigeria, Angola and Kenya are probably the most popular; however these are the countries with the highest level of competition or the biggest barriers to entry for a number of reasons.
South Africa has a well-established consumer goods market with some big brands in different categories owned or managed by big companies, and a relatively high concentration of consumer sales through big retail and wholesalers; these retailers and wholesalers can be difficult to break into. South Africa is an attractive market but not necessarily easy to setup in or achieve success. The same goes for markets like Nigeria which are complex, difficult to navigate through and quite expensive to operate in.
Bigger Markets – cost of success and failure is high
Bigger markets are attractive in terms of their potential, but while the potential for success is high, the cost of failure is also high. A strategy companies could consider is to investigate smaller markets where there is less complexity, less competition and where it is relatively easier to enter, reducing the risks of failure. Smaller markets also provide companies with an opportunity to navigate their way into Africa to gain experience before entering the bigger or more complex markets such as Nigeria or Angola.
While not all big markets have a lot of competition, there are a large amount of companies wanting to break into these countries. A lot of people want to get into Nigeria, but few for example, are talking about markets like Cameroon, which has a large population of 22.25 Million and has the potential for growth.
Companies need to shift their strategy from only investigating big countries like Nigeria to considering smaller countries at the outset, before expanding into larger markets.
There are a number of reasons companies don’t go first to smaller markets. They are concerned that they cannot go everywhere and have to make choices, therefore automatically make the choice based on size. Companies are also concerned that if they do not enter early into these big markets it will it be too late for them. However, that is not always the best strategy. MTN first went into Cameroon and used that experience when they entered Nigeria and Ghana. As a result they were in a much stronger position than they would have been had they gone straight to Nigeria based on the lessons they learnt in Cameroon.
Opportunities in smaller markets
While companies shouldn’t discount big countries they should also consider the opportunities in smaller countries. The question to ask is whether you can gain traction faster, easier and cheaper in those smaller countries. In terms of Southern Africa what about a Zambia or Zimbabwe and in East Africa, what about a Uganda or Ethiopia?
When it comes to cities, bigger is also not always better. In Africa there are over 50 cities with a population over 1 million. The urbanisation rate is also growing from 40 to 50% over the next 20 years and most of this growth is coming from the smaller cities with 50 000 or 100 000 people, not the +1Million cities.
International players typically focus on the bigger cities, yet the biggest growth is coming from the smaller cities where there is also less competition. While companies might have to enter into Nigeria through Lagos, what is their strategy for building their brand in these smaller cities where we are going to see the biggest growth in the future?
In North America the biggest retailer in the world, Walmart started out with a strategy of focusing on smaller towns in America with a population of 50 000 – 100 000. Their competitors focused on the bigger towns and everyone forgot about the smaller towns in the North American context. Is there an opportunity to look at a success model like Walmart and replicate it on the African continent?
To establish a business or brand you don’t always need to go through the front door, you can go through the back door and still land up having a big business. Success still revolves around focus: companies don’t have to go everywhere at once, whether it’s big or small countries and cities.