Strategise Each Expansionary Step To avoid Hopping into Trouble

By Mwangi  Wanjumbi – Newtimes B.S. CEO & Chief Consultant/Trainer

Recent reports indicate that some investors have lost hope of benefiting from regional expansion and returned to base. This brings to mind some experiences as a business strategy/entrepreneurship discussant. That was during 2006 to 2010, when I was frequently hosted by an FM Radio station headquartered in Nairobi, as well as once on KBC Television. Live on air, I passionately addressed many topical business issues of the time.  That included one on regional expansion immediately upon the resumption of the East African Community, sometimes in 2008. Never mind the extent of reach or the degree of internalization of the discussions.

Nonetheless, many in the business community must have salivated in anticipation of profiting from expansion into this regional market.  Indeed, the development promised a ready and immediately expanded consumer market. Even better was the fact that the community has now incorporated Rwanda and Burundi, in addition to the initial 3 members of Kenya, Uganda and Tanzania. Further, Southern Sudan may also officially become part of the regional outfit, after having acquired independence in 2011. Certainly, no serious regional business should ignore a market of close to 140 million consumers of goods and services.

On the face though, the market situation may initially have seemed quite rosy.  But, on the ground, it may not be smooth sailing after all. Some of the investors have already learnt hard lessons. The worst hit, are those who went southwards to Tanzania. Ironically, even their positive experiences have not been necessarily sustainable. Worse still, it has not been easy to dissect the exact causes of this precarious situation.

Nevertheless, it has been determined by the International Finance Corporation that doing business in Tanzania is more expensive than Kenya and Uganda especially with regard to rental space. Then, the disparities of the consumers are also highly noticeable. In fact, the middle class is only 12% in Tanzania compared to 18.7 % and 44.9% in Uganda and Kenya respectively. In light of these circumstances, which have led to sometimes painful losses, a number of investors have decided to close shop and relocate back home.

Meanwhile, international business principles and practices associate expansion into new territories with either fast mover advantages or first mover disadvantages. The advantages arise when an investor acquires new market share, which may not easily be lost to subsequent investors.

Conversely, there is the likelihood of encountering initial challenges when introducing new products. A story is told of how two people were differently sent from Europe, to study the market for shoes in Africa. One reported back that in Africa, people do not wear shoes. Therefore, there is no market for shoes. The other one perceived the existence of a golden opportunity for introducing shoes. And why not?  Africans were not used to wearing shoes.

This opportunistic investor may not have suddenly flooded the African territory with his products. Certainly, he must have invested in research on the shoe sizes, types, gender needs and so on. The costs involved in the investments were obviously fast mover disadvantages. But, there can be serious challenges when the disadvantages outweigh the likely advantages. That is why, it is important to adequately prepare when moving into new territory.

Honestly, one wonders what could have gone wrong in the case of the disappointed regional expansionists. Perhaps, it was just bad luck. Possibly, it was being over ambitious. But, the most likely scenario is that the expansion did not follow strategic steps which need to be considered when venturing into new markets.  Actually, there are many strategic steps that can guide towards successfully investing in new territory, until acquiring fully owned branches in one or even more countries.

Though this piece does not intend to bombard readers with details of each and every one of the strategic steps, it is initially critical to carry out research on existing or even emergent opportunities. Try to understand the consumer and industry trends in the desired market. Once that is done satisfactorily, think of appointing export agents who will initially move desired products or services.

Whatever city you are stationed, you most likely, have noticed many agents representing Japanese, Chinese, Korean, German, British and more companies, for their products and services. The agency arrangements are in fact the very initial steps of investing across borders. Incidentally, Kenya Airways has just appointed an agent to handle its sales in Japan before fully venturing into that market.

However, some investors may tend to skip some of the steps depending on their financial might and specific organizational advantages. But, whatever the situation, it is advisable not to risk through hop, step and jump maneuvers, which could easily lead into avoidable trouble. The same can be circumvented through attending structured and detailed lessons conducted during our strategy and strategic planning/management workshops.

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