Flourishing African companies are rattling multinationals

One of the most significant changes in the business landscape over the past decade has been the growth of African companies north of the Limpopo

By Dianna Games, Chief Executive of Africa @ Work

Although the growth of South African companies and their activities in other African markets get a lot of attention, they are increasingly competing with home-grown companies in their chosen markets.

These companies are developing regional and continental strategies in competition with South African, Asian and Western multinationals.

The rapid growth of the private sector in key African economies is the cumulative result of an era of market-driven economies and business reform but also an increasing trend for locals to support, rather than eschew, their own companies.

Opportunities are knocking
Opportunity is luring back experienced African business people from Western multinationals to grow local companies as part of a new corporate nationalism not seen in Africa before. These local companies are taking on global multinationals in their home markets and, in many cases, winning.

Research by the Boston Consulting Group conducted last year on the impact of growing African companies on the operations of global multinationals was discussed at an event hosted by the Gordon Institute of Business Science in Johannesburg last week.

Even though many multinationals are seeing growth in their African businesses, they are losing market share to local competitors.

The consulting group says 73% of developed country multinationals surveyed considered local companies to be a threat to their business compared with 50% for companies from emerging markets and 40% from traditional multinationals.

African companies showing their muscle
This is a marked change from even a decade ago when global multinationals did not see local companies as competition in Africa.

There are many advantages enjoyed by competitive local companies. They include a looser corporate structure that allows agility in decision-making and innovation; the ability to focus investment and resource allocation on the home base; a deep understanding of the local market in terms of products, services and processes; and embedded market intelligence and longstanding local networks.

Global multinationals are constrained by boards and shareholders based in other countries that do not always understand or appreciate the challenges and opportunities in Africa. Foreign managers tend to be on short-term contracts, a situation that prevents them from becoming properly embedded in country markets. There are also often challenges raised by the need to adhere to onerous safety and corporate governance standards and regulations formulated in developed markets and, increasingly, the limitation of being foreign in a continent that is rapidly ‘going local’.

Growth of African companies is shaking up the market
However, multinationals have advantages local companies do not, including a global backbone that can support local operations in tough times; deep pockets to build brands and products; the ability to leverage experience from other emerging market operations; ownership of prestigious and recognised brands; and access to world-class data and information platforms.

Acquiring a local company is a popular way to meld the competitive advantages of local companies and multinationals. A case in point is the recent acquisition of Chi, Nigeria’s largest juice and dairy company, by Coca-Cola.

Research by Boston Consulting Group conducted before the merger showed Chi had a 33% share of the nation’s fruit juice market in 2008 and Coca-Cola 28%. By 2013, Chi’s market share had risen to 38% while Coca-Cola’s had shrunk to 14%.

The growth of African companies is shaking up the market and changing the landscape. This is good for Africa. A larger African private sector, with greater lobbying power, will help to lower risk in African markets, improve the business climate and increase the size of the potential business space, making the continent more attractive to investors.

* This article has been republished courtesy Africa @ Work and was previously published in Business Day