Expand business activities into Africa – Global companies often look to Africa when thinking about expanding their business activities into new territories. With the rapid growth that African countries have been undergoing over the past 5 years, the continent offers many business opportunities to foreign investors.
How foreign companies enter a new market often determines the future success rate of a company in the future. It is for that reason that it is important to seek guidance and support from experienced service providers when formulating a market entry strategy.
There are many market entry strategies that can be considered when entering a new market. Each strategy has its own set of pros and cons – and deciding which to choose is as much about market insight as it is a financial decision.
Let’s start with looking at the different market entry strategies available to foreign companies wanting to enter African markets:
- Export
- Local representation
- Direct investment
- Buying a business
1. EXPORTING:
One of the easiest and most risk-free methods to expand business activities via market entry is through online retail. Listing your products on an African-based eCommerce platform enables you to reach African consumers and enjoy a local presence. We call this strategy passive market entry as it doesn’t require any initial start-up fees and it is easy to withdraw from the market in the event that your products don’t appeal to African consumers.
The benefit of listing your products on a B2B eCommerce platform is that you will enjoy brand exposure with minimal effort. This strategy is fast becoming an increasingly popular entry point for brands into new markets. It’s also beneficial to list your products on a local e-commerce platform that offers tailored market entry solutions. An example of such a platform in Africa is Enterprise Africa. www.enter-africa.com.
In addition to listing your products on local e-commerce platforms, brands need to consider carefully how to fulfill orders and handle customer relations. We recommend that you consider making use of local warehousing for a small quantity of stock to ensure easy delivery once an order comes in. We say this because when potential consumers are exposed to your brand online but it’s not available in their market, they could end up buying the next best thing that is available. The alternative to local warehousing is dropshipping whereby you keep your products on your premises until such time an order comes through. Dropshipping does however cause delays in delivery time to the end buyer.
While passive market entry is a good starting point, for a foreign company to excel in new markets, it will eventually need to establish a local presence.
2. LOCAL REPRESENTATION
There are alternative methods ti expand business activities into Africa without having to incorporate a company in South Africa. For example, entering an agreement with an Independent Agency whereby the company in South Africa becomes the employer of record who will carry out the activities of brand development in South Africa on behalf of the German Company.
Assigning a local representative to conduct transactions with potential clients, and even partnering directly with major wholesalers or retailers, is a good strategy to increase your sales in new markets.
Having a local representative will give you first hand insights to patterns of consumption, local preferences and consumer behaviours. Having that kind of knowledge is powerful as it will enable you to tailor your brands positioning and products according to local preferences and thus help to expand business activities.
Getting under the skin of target consumers in new markets is what InterGest South Africa specialises in – having assisted multiple foreign companies entering new African territories. InterGest South Africa has a custom-made service called Go2Africa that is designed for foreigners to enjoy having a local presence without having to incorporate a company. We hire an exclusive local representative with the required skills, knowledge, and connections to assist you in growing your business in Africa.
3. DIRECT INVESTMENT
For many companies, incorporating a company in a new market is a big commitment – but also comes with competitive advantages. When incorporating a company, you have complete control over the operations in the new market. Many African countries welcome foreign investment of this kind and have eased their regulations to increase the ease of doing business.
Foreign companies with a taxable presence in South Africa are usually faced with 2 options, incorporating a Branch or Subsidiary (Private Limited Company). These options are distinctly different from a legal and tax perspective and have certain compliance implications. The decision regarding what entity should be formed in South Africa will largely be guided by:
- Whether or not the foreign company seeks to essentially have the same entity in different jurisdictions or whether the foreign company seeks to establish a company which has legal personality that is separate to it; and
- Taxation considerations
Incorporating a subsidiary with share capital and limited liability of its shareholders is the most popular choice amongst our international clients. Mainly because the South African company will have a separate legal identity from that of the foreign company. From a liability perspective incorporating a subsidiary allows for flexibility in that the shareholding in the South African company may be adjusted to allow for participation by a BBBEE partner. Such participation by a BBBEE partner will allow the South African entity to do business in South Africa competitively.
4. BUYING A BUSINESS
Another strategy to consider when expanding your business activities into Africa is partnering with a local South African company through a merger or acquisition.
Mergers and Acquisitions (M&A) has become a popular solution. With many local businesses in Africa having opened their doors to foreign investors looking for business opportunities in Africa.
Benefits of M&A:
- New Markets
International expansion provides companies with access to new markets and potential consumers, thus increasing sales opportunities. While this can be achieved by establishing a branch or subsidiary, a merger or acquisition could save time and money spent on starting a business from scratch.
- Diversification
An international merger or acquisition could result in a wider range of services or products which would assist companies in a greater diversification of assets. Diversification also leads to mitigation of risk and therefore protects the bottom line against unforeseen circumstances.
- Obtaining Access to a Talented Workforce
Merging or acquiring a company further leads to acquiring skilled staff within depth local knowledge and experience in the industry as well as a network of confirmed leads or current clients, the ability to speak the local language, and an understanding of how local business is carried out.
Should you wish to receive a detailed consultation on the various market strategies based on your business model, please contact InterGest South Africa. Our first consultation is cost and obligatory free. We have been assisting companies with market entry into Africa for the past 20 years. We understand the obstacles and concerns that a business has when first entering the African business arena. We offer unparalleled support at every stage of your business venture.
Request a free consultation today: contact@intergest.co.za
