The Economist Intelligence Unit has said that international small and medium scale industries are yet to recognize the growth potentials in the African economy preferring to trade with other emerging economies
AN in-depth study by the Economist
Intelligence Unit, EIU, has shown that approximately 40 percent of
global small and medium-sized enterprises, SMEs, do not perceive Africa
as a growth opportunity despite the positive economic growth stories and
growing middle class in the regions.. The EIU report conducted on
behalf of DHL Express and entitled: “Breaking Borders: From Canada to
China, Barriers Overshadow Growth for Expanding SMEs, revealed that
while many multinationals and state-owned companies are actively taking
advantage of the opportunities that Africa offers, SMEs still remain
apprehensive and are choosing to trade with other emerging markets
instead.
According to the study, which surveyed
480 SME executives and experts from business lobbying groups, SMEs are
deterred by Africa’s low average consumer spend, cultural and
infrastructure challenges, as well as inefficiencies such as corruption
and political risk in the region. The quality of a target market´s
infrastructure, the stability of its politics, administrative costs for
establishing a local presence and cultural differences in doing business
were all cited by the executives surveyed as factors that deterred them
from entering new markets.
In terms of expansion tactics, the
survey shows that partnerships are an important consideration for SMEs.
The study identified a number of innovative approaches in this area,
such as piggybacking on another company’s existing retail network to
enter the sub-Saharan market in Africa.
Charles Brewer, managing director of DHL
Express Sub Saharan Africa, said that despite current challenges to
attract global SME interest, the findings of the study highlight the
untapped potential that still exists in the continent. “The fact that
SMEs expect to generate up to 50 percent of revenues internationally by
2019 is a massive positive and highlights the vast opportunities for
Africa from an investment and job creation perspective,” he said.
He explained that overcoming different
market environments is the biggest hurdle. “The unfamiliarity of foreign
markets received particular attention, with 84 percent of respondents
describing understanding a target market’s culture or language as
important or very important in determining its attractiveness. This also
explains why most SMEs often expand into markets that resemble their
own.
“This is evident in Africa, as companies
looking to expand into the continent, often make use of a ‘one size
fits all’ approach. Due to the various cultures, languages and customs
on the continent, vast amounts of research need to be done into each
region, and the services and products need to be specifically tailored
to each country. Africa is not one country,” Brewer said.
“A number of multinationals and
corporates have experienced great success in Africa, DHL being a prime
example. And the good news for SMEs is that they have the advantage of
being more agile to adapt quickly and exploit the opportunities
available. An entrepreneurial spirit is vital for the success of small
businesses, we ourselves started out as an SME in 1969, and as they say,
the rest is history. We too have focused on partnerships in Africa, and
now have a retail presence of more than 3500 outlets across Africa.
“We work with thousands and thousands of
SMEs across Africa and have witnessed how these businesses are able to
successfully establish a presence in the region. With the support of the
right partners, a well-designed supply chain, clear understanding of
their competitive strengths and the right mindset, SMEs can break
through any border and make the world their market,” he said.
| By Maureen Chigbo
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