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Monday, 1 April 2013

7 Reasons Why Multinational Companies Fail In Africa



Business in Africa as we know it is fraught with its peculiar challenges and an air of uncertainty by reason of several inherent challenges including infrastructural,  educational, power problems, security, health, and the list goes on.
The global perception is partly that of gloom and also that of boom the more favouring the gloomy picture. Interestingly, while Europe and the Americas have been pretty reluctant with making significant investments in the continent, China and other Asian countries have been rather aggressive with their partnerships and investments in Africa over the past three years.

The fact still remains that these businesses when they do eventually set up shop in Africa, they come face to face with the realities of the African business climate that a lot of times they did not anticipate or perhaps were not properly prepared for. Over the past decade and longer, several multinational companies that previously had interests and physical presence in Africa have gradually faded away from the scene due to several reasons.

In my interactions with multinational companies I have observed some mistakes that multinational companies in Africa most often make when doing business that sometimes even leads to the collapse of the business even when they are still very profitable and show potential for growth. I came up with a list of seven mistakes and suggestions on possible solutions multinationals still doing business in Africa or intending to penetrate the African market can use to beat the odds and even compete favourably with local competitors. Though my list is not exhaustive, I believe it can however serve as a background checklist.

I highlighted seven of these mistakes to include:
      1.      Too much Focus of energies and resources on the wrong things:
A lot of multinationals pride themselves in certain activities and traditions that do not really translate into increased revenue for them, and which they do not realize are actually detrimental to their profitability when operating in Africa. Some of these activities include conferences, advertising and brand promotion, trainings, luxury parties, etc. the point here is that rather than focusing excessively on all of these activities which do not directly or necessarily affect the bottom-line, rather companies should channel these resources at activities that will drive productivity and profitability of the business such as
                                                      
      2.      Poor Management: 

     A lot of times, some multinational companies in a bid to hire highly qualified employees, they tend to focus on academic and paper qualifications relegating experience and proven performance. It is a very cool thing for corporate organizations to show off their employees sporting posh credentials and being trained in big named institutions and facilities. This does not necessarily mean that the employee(s) are delivering on the results and   often times as a result of incompetence and poor management it reflects in their low bottom-line and poor turnover.


     3.      Elitism & Profiteering:

A number of multinationals penetrate the African market with the hopes of profiteering and taking advantage of the vast population and vast resources of the continent for their gain. Some even go the extent of making or limiting their products and services to certain classes of individuals (mostly the high income earners) either by way of pricing or perception. As such, their products and services are believed to be meant only for certain elite groups.  The fact remains that a larger percentage of the population on the continent are low income earners and it falls to reason that companies wishing to be and remain profitable on this terrain must strive to always keep their products and services affordable to the larger population. 

      4.      Lack of Flexibility & Adaptability:

It is very easy for companies to run their business operations in Africa as though they were in Europe or America without taking into consideration the peculiarities and uniqueness of the African business terrain. They make the mistake of “copying and pasting” the business operational models which they used in their foreign operations in their African businesses and as such they face the challenge of their systems not being workable and very rigid and unable to adapt to the realities of the market due to lack of flexibility. Multinationals should adapt and adjust their business models and operations to suit the African business climate in order to be and stay profitable.

     5.      Negative Government Policies:

It is a sad reality that more often than not, some negative government policies stand in the way of the productivity, profitability and expansion of companies and business in general in Africa. Some of these policies may sometimes relate to land use, taxation, employee policies, regulatory policies, etc. These things stifle growth and productivity not only for multinational companies but also for local companies as well as they also face the same or similar challenges and shoulder similar burdens. If African governments will be more responsive and forward-thinking, their policies would be targeted at encouraging industrial and commercial development and would see the birthing of new industries and enterprises as well as the influx of the much needed “foreign investment” creating the much needed jobs and expanding their economies.

     6.      Lack of Thorough Territory Grasp:

When most multinational companies intend penetrating an African country, typically not much feasibility study is done internally, most of the feasibility is outsourced to big name consulting firms–most of the time overseas based–who churn out figures and statistics that say whether or not their business would be successful in the terrain.  As a result of them not having first hand, thorough, in-depth, realistic and factual knowledge of the business terrain in the territory they choose to operate in, when they do eventually begin business, it is not long before certain unexpected and unforeseen issues, expenses, challenges and realities present themselves and since they were not adequately prepared for these, they fold up. Multinationals need to carry out proper, thorough feasibility studies; where they need to outsource this to consulting firms, it is advisable to consult reputable local firms with wide reach and sufficient information.

     7.      Corruption:

It is a known fact that poverty is a very real problem in Africa. It is not unusual to find that a 
number of local employees see working for these big reputable companies as an opportunity to loot/steal funds from them. This makes the multinationals lose credibility in local employees and prefer hiring expatriates over them and still placing strict constraints on their local employees in an effort to curb corrupt practices and limit misappropriation. However, the fact is that where there is sufficient financial motivation and incentives for employees, the tendency for them to engage in fraudulent, corrupt or unethical practices is very much unlikely. The reality is that some multinationals in an effort to stay profitable and competitive tend to underpay their staff compared to global and industry standards. As such the tendency for corruption and sharp practices is very high.

Like I stated at the beginning of this article, there are several issues and challenges that multinationals wanting to do business in Africa must grapple with and my list of mistakes is in no way exhaustive. Confronting the business challenges in Africa require home-grown solutions, strategies and also peculiar perspectives.



Written by Precious Nwanganga © 2013
Follow him on twitter @Pmoney_Talks
Email him on buzzfizzle@gmail.com

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