10 strategies for Indian startups to make in-roads into African markets
Bilateral trade between India and Africa in 2000 was around $3 billion. Later, the trade shot up from $25 billion in 2006-07 to $70 billion in 2012-13. However, the Indian government aspires to touch $200 billion mark before 2020.
According to the McKinsey report: “Joining hands to unlock Africa's potential a new Indian industry-led approach to Africa", released at CII Conclave today, India can aspire to quadruple its revenues from Africa to USD 160 billion by 2025 by developing its presence in sectors where India has a unique value proposition and African nations have high needs such as IT services, agriculture, infrastructure, pharmaceuticals and consumer goods.
"The African continent is one of the most important partners for the country, and 11 fastest growing economies in the world are in Africa. We are looking at infrastructure development in Africa, the big project exports. We are encouraging the entire private sector in India to get into these sectors," said Barnik Chitran Maitra, partner at McKinsey.
India and Africa are poised to grow together. Indian companies investing in Africa will now gain access to a larger regional market in Africa. Mr Anand Sharma, Minister of Commerce and Industry, Government of India, said, “The 21st century will be the century of India, Asia and Africa. India and Africa are taking their rightful places in the emerging world order.”
Mr Sharma urged the present generation to revisit the pages of history to remind itself of the greater goals that drive the India-Africa partnership. India has committed over $10 billion to Africa for infrastructural and development projects since the holding of the first and second India Africa Forum Summit meetings in 2008 and 2011, and is partnering in establishing 70 pan-African and regional institutions across Africa.
According to the report, India can aspire to capture almost seven per cent of the African IT services market, five per cent of its FMCG space, 10 per cent of the power sector and two to five per cent of the agri-allied services. "Returns to FDI in Africa in the last five years have been the highest in the world," Director at McKinsey & Company Rajat Gupta said.
Overall, the EXIM Bank has lent 187 Lines of Credit totaling about $12 billion across the world. And 50% of the amount went for financing exports from India to cover around 48 countries in Africa. The bank has placed 136 Lines of Credit (LOCs) with credit commitments of around $6.5 billion in Africa. These LOCs are earmarked for developmental projects like railway rehabilitation, setting up of textile, cement, tractor assembly, agro and food processing, rural electrification and transmission and irrigation.
Like any other emerging regions of the world, Africa offers diverse opportunities alongside a few bottlenecks, for trade and investments. Here is the slide of 10 strategies Indian companies will need to adopt to make inroads into African markets.
- Prioritise early — Identify priority sectors and countries quickly and set up strong business organisations there.
- Go granular — Understand local nuances and adapt business models accordingly. Africa is one continent with 55 different countries, each with its own culture, customs and behaviours.
- Expect to iterate — Customise approach based on continuous learning. There are no fixed answers to succeed in Africa; hence, companies should be ready for initial disappointments and tune their business model accordingly.
- Choose distribution channels carefully — Understand and control the route to market for success in such a fragmented geography. This is a challenge which Indian companies have mastered on the home turf, and must now face in a geographically larger context.
- Build brands aggressively — In Africa, brands are considered to be the clinchers in making purchase decisions. Hence, brand building, especially in the consumer goods sector, is critical.
- Deliver value across price segments — Innovate to meet the entire range of needs as the landscape is still open for brands and whole categories. In the consumer goods sector, Indian companies can meet this challenge with their wide product ranges.
- Think long term — Business in Africa cannot be built quarter-to-quarter–companies must be willing to invest for the long term, spend effort on setting up the business’ roots in the country, and only then achieve success.
- Involve locals and insiders as partners — This is necessary to get local insights, benefit from regulatory know-how and develop relationships. The ultimate aim must be to become the insider.
- Partner with local governments — Governments in most African nations play an important role in business development, and partnering with them is crucial to creating opportunities.
- Invest in building local talent — Given the relative lack of local talent, developing talent will play a critical part in scaling up any business, and must be invested in proactively