Temat: 'Walk the Market': Tapping into Africa's 900 Million...

'Walk the Market': Tapping into Africa's 900 Million Consumers

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When multinational companies want to tap into the massive pent-up
consumer demand in emerging markets, the first countries that they
usually think of are China and India. But what about Africa, asks
Vijay Mahajan, author of Africa Rising: How 900 Million Consumers
Offer More Than You Think (Wharton School Publishing). Though often
overlooked in global corporate growth strategies, he argues, Africa
as a whole has enough consumer power to give China and India a run
for their money.

Having returned from various fact-finding missions, he uses his new
book to dissect the vast, complex markets of Africa, starting with a
look at the home-grown entrepreneurs who have overcome political,
economic and social barriers to grow and innovate. For
multinationals, particularly those facing shrinking revenues from
other emerging markets affected by the global economic downturn, the
lessons are timely.

The topic isn't entirely new for Mahajan, a marketing professor at
the University of Texas in Austin. In 2006, he was co-author of The
86% Solution: How to Succeed in the Biggest Marketing Opportunity of
the 21st Century (Wharton School Publishing), a look at how
companies can reach the vast majority of the population in countries
with a per capita gross national product of less than $10,000. In an
interview with Knowledge@Wharton, Mahajan talks about Africa
Rising.

An edited transcript of the conversation follows.

Knowledge@Wharton: What is the market opportunity that Africa
offers? And why do so many companies tend to overlook it?

Vijay Mahajan: Your first question is the heart of the book. Like
most of us, I did not realize until I started working on the book
that the population of Africa -- at about 950 million -- is
comparable in size to the population of India. And if you look at
growth rates, the population could be equal in size in a few years
to the population of even China.

The next point is about market opportunity. Are there consumers in
Africa who have the resources to buy products like consumers in
India and China do? The fact is that the GDP of Africa -- that is,
looking at the continent as if it were a sort of United States of
Africa -- is actually higher than India's. If all the countries in
Africa combined forces, they would be the 10th largest economy in
the world, one notch above India, and ahead of the other big
emerging economies, Brazil and Russia.

In terms of market opportunity, the data I was collecting was so
intriguing that it drove me to visit Africa and to speak with a
range of companies there, from local entrepreneurs to U.S. and
European multinationals. And at the end of the day, I was convinced
that the market opportunities in Africa for all kinds of products
are similar to the market opportunities that you see in places like
India.

Why has Africa been ignored? That has puzzled me. When I travelled
from Southern Africa to Northern Africa, I was surprised that I
didn't see more U.S. or Western European companies than I did. One
U.S. multinational with an exceptionally big presence is Coca-Cola.
It has been there more than 90 years. Another company with a big
presence there is Unilever, the Anglo-Dutch consumer goods producer.
So while there are some multinationals, it's not to the same extent
as what I saw in India and China when I was researching my previous
book, The 86% Solution.

The other thing is that here in the United States and in other
developed countries, we get nothing but bad news about Africa in the
press. Not to criticize CNN, but you know how badly the Africa that
is portrayed in the media like CNN is. The CEOs I was interviewing
were so happy that, for the first time, a professor from America was
interested in learning about what they were doing.

But it could just be a matter of time. When I started working on The
86 Percent Solution 15 years ago, I used to hear the same stories
from many Indian and Chinese entrepreneurs.

Knowledge@Wharton: Africa is clearly a large market, but it is
obviously not a monolithic market. How is the market structured
across the different countries?

Mahajan: The market is not different from any other developing
country. After speaking with a lot of advertising agencies,
multinationals and local entrepreneurs, I decided that there are
three major groups in Africa, which I refer to in the book as Africa
1, Africa 2 and Africa 3. The terminology is actually taken from an
Indian entrepreneur mentioned in the book.

Africa 1 comprises between 5% and 15% of the population of each
country. These people could be from anywhere in the world. They may
be senior government officials, expats, people working for
[non-government organizations], people working for large,
international banks. This segment was not as interesting to me as
the others.

The segment that really was interesting is what I call Africa 2.
People in this segment are neither poor nor rich; this segment
comprises average people living from month to month. They may have
some savings. And you can guess that these people are civil servants
-- hardworking nurses, hardworking teachers and so on -- or work in
the hospitality industry.

This segment has very high aspirations. These people believe Africa
is going somewhere, and they are upbeat. I spend a lot of time in
the book on what a big opportunity Africa 2 is. The size of this
group is between 35% and 50% of a country's population, the
equivalent of between 350 million and 500 million people. Divide
that number by 5, which is the average size of a family in Africa
(in the U.S., it is 3; in India it is 4).... So there is a very
viable Africa 2, which is really going to drive the economy and the
consumer markets.

Now, Africa 3 -- the remaining 35% to 60% of an African country's
population -- is the one that is struggling. These are the stories
that you typically hear about. But that number is not any different
from other developing countries. After all, there are 700 million
people in India and 750 million people in China who do not have
access to a toilet. What's interesting about Africa 3 is that many
of them work for Africa 2 and Africa 1, as maids and the like, and
they aspire to perhaps one day be part of Africa 2.

Knowledge@Wharton: Would you be able to give a few examples of
innovative, home-grown firms or burgeoning sectors that have
identified opportunities in Africa?

Mahajan: One example of a remarkable firm is a company in Kenya
called Mabati Rolling Mills. The name is the Swahili word for the
rolled metal roofing that many Kenyans use for their houses. For
people in Africa 2 and Africa 3, one of their main goals when they
save some money is to build a house. So they build one room at a
time, which may take years to complete. And they need a roof -- that
is, the 20 to 30 roofing sheets they need, which they will slowly
buy, two or three at a time. You will often see people transporting
the sheets on top of a taxi or balanced on two bicycles. Mabati's
entrepreneurs saw that need and the company is now the dominant
manufacturer of the $180 million metal roofing market in Kenya. It's
also continuously updating its product lines, and now exports to
around 50 countries world-wide.

Then there's the film industry. For example, Nigeria's Nollywood
makes more movies than India's Bollywood in India and Hollywood [in
the U.S]. The quality, of course, is questionable. And many
countries do not have cinemas, so every Nollywood movie is available
only on tape, not even DVD or CD.

Another burgeoning area is cosmetics or personal-care products,
keeping in mind that African women are not any different from women
anywhere else. While many multinationals have not tailored their
products as much as they could to suit African consumers, locals
have, and so you will see a lot of local hair products.

There's also a big market for used, or second-hand, products. When
you or I change our mobile every two or three years, we do not even
think about where it might end up. Actually, the used mobiles from
Europe and the United State often go to Africa.

And interestingly, death, too, has a role to play. Although it may
not be openly admitted in many of these countries, death is often a
celebration. Many people use their savings if someone close to them
dies, and they host a wake or what have you. You can imagine when a
whole community is invited. So some companies have been set up to
cater to those occasions.

Knowledge @ Wharton: You mentioned Coca-Cola and Unilever. What are
multinationals doing to serve the underserved markets in Africa?

Mahajan: In the last chapter of the book, I talk about "ubuntu", a
Zulu word meaning, "I am because you are." In other words, we are in
this together. Desmond Tutu uses the word to evoke harmony. And I
tried to give it a business twist. The way I see it is that
companies cannot exist unless they take care of their employees and
they take of their customers.

A case in point is Coca-Cola. It has distribution centers in almost
every nook and cranny of the continent, whether it means
transporting their goods on buses, on donkeys, on bicycles or by
whatever means. Why not use that network to distribute condoms? So
Coca-Cola has been working with NGOs like Population Services
International, based in Washington, D.C., to help deliver condoms to
parts of remote parts of Africa.

Unilever, meanwhile, is involved in HIV initiatives that I saw in
Southern Africa, which are very different from other initiatives.
There they have focused on the orphans of families where both the
parents have died because of AIDS. Unilever helps to find adopted
mothers to raise these children.

Beyond ubuntu, something else that you see at successful
multinationals in Africa is a very clear understanding of consumers.
They know that they have to do more on this continent [than in other
developing countries] given the spectrum of the consumer they have
to deal with.

Knowledge@Wharton: Given your marketing background, what struck you
most about marketing in Africa?

Mahajan: I often saw kids buying a bottle of Coke, which is
expensive, and they would put the bottle right in the middle of the
table so everybody can see it, and they would have enough glasses
out to share that Coke with friends. It is an aspiration product.
Aspiration also is an important element that I saw in many of
marketing campaigns.

Another thing to keep in mind there is that Africa has a young
population. A little more than 40% of the population is younger than
15, compared with about 30% in India. That's why the use of sports
in advertisements is very predominant. So is music.

Knowledge@Wharton: What about pricing strategies? Do they address
Africa 1, Africa 2 and Africa 3?

Mahajan: Something I had seen in other developing countries was the
predominance of the "lowest coinage strategy". So when you and I buy
a bottle of water here, we pay whatever we need to pay -- sometimes
$1 or at airports we might be paying even higher. You would find
that bottled water there from multinationals, such as Nestle. But
the local entrepreneurs have developed products that they sell at
the lowest monetary unit, which, for example, in Nigeria is 5 naira.
But the water might not be sold as it would be in developed
countries, and many times it may not be filtered water. It may be
the tap water, but they sell it in a small plastic bag.

Now, who is buying that? In many cases, it could be people standing
in front of a mosque or a church or a temple and asking passersby
for money. Because it's so hot, they cannot go the entire day
without water. Some entrepreneurs figured out that that they could
sell water to these people, at the lowest currency.

Knowledge@Wharton: What are the major hurdles that you found,
political or otherwise, that companies face?

Mahajan: When I was there, I made a point of not talking to any
politicians or any chambers of commerce. I figured that politics is
not any different than in India and China, and I wanted to avoid
that. Putting aside all the rules and regulations, I wanted to see
how companies are able to still get close to Africa's 950 million
consumers.

I saw some very creative solutions. For example, one of the most
interesting companies that I studied was Innscor, a fast-food
restaurant chain from -- of all the places -- Zimbabwe. But the
interesting thing I discovered about this company was how they are
able to cope with their country's turmoil by, for example, expanding
into other parts of Africa.

Then there's its crocodile farm, the largest in the world. I asked
Innscor's executives: "You have the restaurants and you also have a
distribution channel used by multinationals to ship their products,
so why this crocodile farm?" The answer was that because of the
political situation, they realized that they would not have access
to foreign currencies. So the crocodile farm, you can guess -- the
skin is sold to Europeans and the meat to Chinese.

Knowledge @ Wharton: You referred to China and India. In both
countries, there is an overseas diaspora that gets actively engaged
in the development efforts of the homeland. Did you find the same
sort of phenomenon in Africa as well?

Mahajan: Yes, diaspora is involved in Africa. According to estimates
based on formal and informal remittances, Africa gets about $40
billion a year, the same amount that India gets. And there are
organizations, such as one in London called Recruit Africa, which
has been set up to help African emigrants find jobs. But in the
book, I make a plea to the African diaspora to really get more
involved.

Mo Ibrahim, the founder of mobile-phone company Celtel, is part of
the diaspora. He was originally from Sudan, educated in Alexandria,
got his Masters and PhD in England while working for British
Telecom, and then started the mobile phone company in Kenya. And it
is a fascinating story -- how he dealt with no electricity, how he
provides customer service to all these rural areas, and so on.

He is just one example of many from the diaspora who are returning
home to start up companies. The university in Ghana, Ashesi
University College, was started in 2002 by a Ghanian, Patrick Awuah,
who was part of the diaspora. He was a former software engineer at
Microsoft and has created a very nice undergraduate university.

The person who was the head of Coca-Cola in Africa when I was
finishing the book, Alex Cummings, is part of the diaspora. He is
from Liberia, came to the United States to get his education, and
now he has been promoted to chief administrative officer for the
entire company at its global headquarters in Atlanta.

There are an estimated 100 million Africans living away from home.
But the immigrants who are still connected to their homes -- like
the immigrants from India and China -- are sometimes very
innovative. I've been seeing some very clever ways that the diaspora
is involved in talent, in helping their families to start businesses
back home.

Knowledge@Wharton: What advice would you give to companies that want
to tap into Africa?

Mahajan: The advice that I am going to offer is not any different
than what I would offer for India and China. I met with some very
interesting Unilever executives when I was in Harare, Zimbabwe, and
they told me that if you really want to understand Africa, you have
to go on "consumer safari". You have to go and see with your own
eyes what is going on. A Coca-Cola executive in Kenya also gave me
the same advice. And that's not always the case. Many companies,
they said, manage their Africa businesses from their headquarters in
Europe. If the top management is not there, they do not really
understand the market themselves, and they do not get involved with
the local institution. So the good advice that I was given was to
"walk the market".

I would encourage companies to turn to that diaspora for help in
penetrating those countries. To my great surprise or ignorance, I
found out that the number of immigrants from Africa to the U.S. is
close to 1.1 million, which is slightly less than from India. Also,
10% of the population from North Africa is in Europe now. So you are
talking about 100 million North Africans, and 10 million of them are
in Europe, sending a lot of money back home. There is also a lot of
talent there.

Another thing I would suggest is to think about making acquisitions.
There are many local entrepreneurs who are running remarkable
companies, just like China and India. For example, there's a
supermarket chain in East Africa called Nakumatt. It's just like a
U.S.-style supermarket, but customized and it is growing very
rapidly. If somebody wants to go into retailing, I would see
Nakumatt as a very nice candidate that they could leverage to really
penetrate those markets.

The situation in Africa is not any different from India and China.
You have to really get to know that continent and see for yourself
what opportunities exist there.

Published : 2009.08.19

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