Archive for the ‘Business Models’ Category

As global firms (MNC) pull back from emerging markets, what does this mean for Africa?

tumblr_nwsbz0ytDw1qghc1jo1_500Last week’s issue of The Economist drilled down deeper to cover the retreat of globalization – at least in the most visible form, that of the multinational brands dotting cityscapes around the world. The retreat of the global company, they trumpet, the end of Theodore Levitt’s vision.

Credit Suisse takes a concise yet comprehensive look at these weak signals in their well-written report that frames the situation as a transitional tug of war between globalization and multipolarity – an inflection point, rather than a retreat. They make it sound like missing the turn at an intersection and having to come back to the traffic lights to figure out which way to go.

Duncan Green of Oxfam captured the essence well:

But the deeper explanation is that both the advantages of scale and those of arbitrage have worn away. Global firms have big overheads; complex supply chains tie up inventory; sprawling organisations are hard to run. Some arbitrage opportunities have been exhausted; wages have risen in China; and most firms have massaged their tax bills as low as they can go. The free flow of information means that competitors can catch up with leads in technology and know-how more easily than they used to. As a result firms with a domestic focus are winning market share.

In the “headquarters countries”, the mood changed after the financial crisis. Multinational firms started to be seen as agents of inequality. They created jobs abroad, but not at home. The profits from their hoards of intellectual property were pocketed by a wealthy shareholder elite. Political willingness to help multinationals duly lapsed.

Of all those involved in the spread of global businesses, the “host countries” that receive investment by multinationals remain the most enthusiastic.

The first thing to note is that the global MNCs being considered by The Economist are primarily the legacy ones  – fast food chains like McDonalds and KFC (Yum Brands) – whose shiny logos used to represent the liberalization of the closed markets of India and China.

Even at powerhouses such as Unilever, General Electric (GE), PepsiCo and Procter & Gamble, foreign profits are down by a quarter or more from their peak.

or the few examples of emerging market brands that have gone global such as China’s Lenovo which purchased IBM’s Thinkpad and India’s Airtel which bought into the African market.

What’s being touted as their competition are regional brands, who aren’t as stretch out globally in terms of their supply chains, and less vulnerable to currency volatility. Further, the majority of these global brands are heavily dependent on their B2C marketing and sales – the question of whether they ever managed to understand their new markets is a topic for another post.

And so, we ask, what will this mean for the emerging economies of Africa, who are only now seeing the first fruits of FDI? Who will come and develop their consumer markets?

India and China apparently. And strategically – through unbranded affordable commodities and the acquisition of successful regional consumer brands – rather than the legacy MNC approach influenced by Levitt. Even Japan recognizes this, as they seek to piggyback on the Indian experience.The economics of scale that propelled the first rounds of growth for the manufacturers of washing machines and the automobiles never did make sense infrastructurally for the majority of the African consumer markets.

Instead, the patterns pointed out by The Economist and Credit Suisse imply that opportunities will lie among regional stars – Equity Bank of Kenya, for instance, whose regional footprint is surely but steadily creeping outwards across the East African Community and trading partners – or, the telcom brands such as Tigo (Millicom) who innovate for each of their local markets.

The jobs and exports that can be attributed to multinationals are already a diminishing part of the story. In 2000 every billion dollars of the stock of worldwide foreign investment represented 7,000 jobs and $600m of annual exports. Today $1bn supports 3,000 jobs and $300m of exports.

Godrej, for instance would be considered a regional Indian giant rather than a multinational in the conventional sense of a Unilever or P&G.

Where [MNCs] get constrained is, they are driven by lot of processes that are global. For a smaller organisation like us, we are completely empowered; decision-making is quick and we can initiate changes very fast. We are more agile and have an advantage over them.

Yet their expansion outside India shows a “pick and choose” strategy of markets they’re comfortable entering.

The group’s acquisition strategy hinges on identifying unlisted companies built by entrepreneurs looking for capital, picking up stakes and working with them to scale up their businesses.

At least two homegrown Kenyan FMCG brands – skincare by a global giant and cosmetics by private equity – have been acquired. As have snack foods, spices, dairy products, and other products that cater to local tastes. The best known being Fan Milk of West Africa. Private equity such as Abraaj make no bones about going after consumer driven opportunities.

Given these choices, sustainable African businesses who understand their consumer markets have an opportunity to establish their brands and grow – with the financial help that’s strategically becoming available.While Chinese imports make the market highly competitive and price conscious, fish and tyres are substitutable goods in a way skincare and cosmetics are not.

African consumer companies – formal, informal, or semi-almost there-formal – need to hustle right now.

The retreat of the MNCs offers a chance to exhale, and expand, and grow, but the advent of the East implies waking up to the need for serious strategic thinking about domestic comparative and competitive advantage – one of which is incomparable knowledge of local consumers, culture, and needs, and critically, experience of their vast informal sectors and cash intensive economies.

Detailed breakdown of Uber’s business model in Kenya puts spotlight on weaknesses

Latiff Cherono has just published an indepth analysis of what exactly it takes for an Uber driver in Nairobi to cover the cost of doing business. Here’s a snippet,

In this post, I try to understand the root cause of the disconnect between how the customer (who defines the value), Uber (the service that controls the experience) and the driver (the one who provides the service).

He accompanies his analysis with a detailed breakdown of costs and revenues, such as the table below, and others in his post.

new-picture-2And concludes:

The incentive for any person who starts a business is to maximize their profits. As such, we should expect that Uber drivers will approach their business in the same vein. However, the data provide by Uber to the driver is limited and prevents them from making informed decisions about generating revenue. For example, drivers do not know the estimate distance of a new trip when they accept it via the app. They are also penalized for not accepting rides (even if that trip may not make financial sense to the driver). All this is by design as Uber wants to maintain a steady supply of “online” vehicles on their network. One may argue that Uber is not being transparent enough with its independent contractors.

My thoughts:

Nairobi, Kenya isn’t the only ‘developing’ country context where Uber is creating unhappy drivers (and customers, one assumes) due to the design of their system. While most of the first world challenges to the company have come from the perspective of the formal economy and its regulations and laws regarding revenue, tax, employment status et al, the same cannot hold for the entirely different operating environment where the informal sector holds sway. And taxi driving is one such service.

Kampala, Uganda has it’s own challenges for Uber, including:

  • Uber drivers are reportedly leaving the service, switching off the Uber apps or not picking calls from corporate clients and those paying with a credit card. For the first four months after its launch, Uber was offering drivers incentives that saw them earn between Ush200,000 ($57.1) and Ush350,000 ($100) a week.
  • With increasing competition, drivers say that Uber’s incentive structure has been changing. In the first four months, Uber drivers were getting Ush15,000 (about $4) per hour, but this has since been scaled down to Ush10,000 ($2.9) and to Ush4,000 ($1.1) in incentives.

There is so much to be unpacked here, including the entire section on Uber’s own perception of how the market works, upto and including how to introduce time limited incentives, that I’ll follow up on it subsequently.

In this post, I wanted to highlight Latiff’s analysis and hard work pulling together the operating costs data, even as I leave you with this snippet from the article:

Uber’s commission in Nariobi was reduced from 25 to 20 per cent following protests by drivers in August, accusing the taxi hailing service of working them like slaves.

As I wrote earlier in the year, Uber could have done so much more in these markets, particularly on the path to formalization. Instead, they’re continuing on their journey as yet another smartphone app making life even easier while squandering the potential for real world change for the less privileged members of our societies.

 

 

Analysis of the mobile phone’s impact on cash flows and transactions in the informal sector

As we saw, Mrs Chimphamba needs to juggle time and money as part of her household financial management in order to ensure that expenses can be met by income. We also saw that the mobile phone was made viable and feasible by the availability of the prepaid business model that gave her full control over timing and the amount required to maintain it — how much airtime to purchase? when? how often? — all of these decisions were in her hands, within the limits of the operator’s business model. Now, we’ll take a closer look at the impact of the mobile on her domestic economy.

Readily available real time communication has helped Mrs C by speeding up the time taken for a decision on a purchase or a sale. That is, the transaction cycle has been shortened. As the speed of information exchange increases, it increases the speed of transactions — it shortens the duration of time taken to execute them from inception to completion. This, in turn, implies that more transactions can now take place in the same amount of time thereby increasing the frequency and the periodicity. When mobile money is present, one can see that as both quantity and frequency of transactions speed up, so does the cash flow. We’ll come back to this factor.

To explain using a real life example, Mrs Chimphamba does not need to sit at her homestead wondering if today someone will pass by to purchase a bottle of wine. Similarly, Mrs C’s customers do not need to go out of their way to pass by her homestead to see if the wine is distilled and ready for sale, or whether it will still take another day or two for the next batch to be ready. Further, the uncertainty of whether they’ll have cash on hand on that future day, or if they’ll return as promised are all elements that real time communication have minimized.

Now, Mrs C is able to let her regular customers know that she’s making a new batch for sale and do they want to reserve a bottle for purchase? It allows her customers to put aside cash for this purchase. She is even able to accept and execute larger orders for some future date, and even accept some cash advances if her operating environment includes the presence of a mobile money transfer system such as those more prevalent in East Africa. This in turn changes her purchasing patterns and decision making as the pattern of cash flows — timing and amount — changes. She isn’t making do anymore on an unknown and predictable sale based on sitting and waiting for someone to show up to buy her wine.

Real time communication has improved the decision making cycle for both buyer and seller in a transaction as it counteracts uncertainty and information asymmetry even while speeding up the time take for a decision.

As the quantity and frequency of transactions increase— first, in cash conducted face to face, and then later, remotely by mobile money, regardless of the size of each transaction — the change in cash flow patterns begins to smooth out the volatility (the uncertainty factor has changed completely) between incoming and outgoing, as well as the decisionmaking involved. That is, the gap between income and expense starts becoming less in terms of both timing and amount — there is the possibility of a steady stream in the pipeline. Calculus offers hints of how the curve can begin to smoothen out as frequency and periodicity of transactions begins to accelerate.

Size of transactions thus begin to matter less in that the incoming amount now does not need to be so large as to cover expenses for an unknown duration of time before the next incoming payment; nor do expenses have to be tightly controlled constantly due to the uncertainty of the duration of time before the next payment, and the types of expenses incurred during this unknown period of time.

So the boost in decision making — how long it takes to complete a transaction, how often can transactions be completed — enabled by the real time communication facilitated by the mobile phone; plus the attendant immediacy of receiving payment via the same platform is the root of the improvement in the hyperlocal economy and consumption patterns among the informal sector actors. This is why large established traders (with sufficient financial cushion) were heard to observe that both purchasing power and consumption patterns had changed in their market town (Busia, Kenya Jan 2016) in the past 10 years since first the mobile phone, and later, mPesa, were introduced into their operating environment.

Uncertainty and information asymmetry that have long characterized the fragile and volatile nature of the informal sector operating in inadequately provided environments with unreliable systems and scarce data. In the next chapter we’ll step back and take a broader look at communication, connectivity, and commerce in the informal economy starting with the description of the operating environment’s characteristics regardless of continent.

This is part of a newly launched Medium where I will write in detail on economic behaviour and its drivers in the informal economy. Much of it draws upon the original research in the field from 2008-2009 which was shared on the prepaid economy blog. I found that time had passed and increased my understanding and I wanted to explore those discoveries in writing. Much of this is the foundation for recent works on ‘Mama Biashara‘.

Mobile Money in South Africa: The nature of the beast by Flo Mosoane

pexels-photo-3The 2015 State Of The Industry Report (SOTIR) for Mobile Money published by GSMA, reveals a picture of a service that continues to change the landscape of financial inclusion in developing and poor countries across the globe. In December of 2015, the industry processed transactions in excess of a billion, most of which were in Sub Sahara Africa.

It seems however, that the continued success of Mobile Money eludes South Africa. What with the untimely death of Vodacom Mpesa after millions of Rands of reinvestment. Only 4 months after which MTN South Africa also announced that they are ceasing new registrations, marking the end of (Mobile Network Operator) MNO-lead Mobile Money deployments here.

Despite the large bang that MTN Mobile Money launched with, managing to sign over 2 million subscribers; at the end, Vodacom Mpesa only had just over 75 000 users, and MTN Mobile Money only about 140 000 or so users. A performance that neither of these well-established, successful, multinational MNO’s can be proud of.

We lament the apparent failure of Mobile Money in South Africa. It is well established that it has made a significant contribution to financial inclusion for underserved populations, and still presents significant opportunity to serve unbanked and underbanked communities.

This is a very special contribution by Flo Mosoane, writing from first hand experience on the ground on this subject. Do read the whole article.

Read On…

Le commerce direct des produits fabriqués en Chine est-il susceptible de perturber le marché des consommateurs africains?

This article has been translated into the French by Yacine Bio-Tchané

La première plateforme d’e-commerce spécialisée dans la vente directe des produits fabriqués en Chine vient d’être lancée au Togo, un pays de l’Afrique de l’Ouest. Coincé tout comme la République du Bénin entre deux grands pays davantage connus, le Nigeria et le Ghana,le Togo est un petit pays francophone d’environ 7 millions d’habitants.

frenchComme l’énonce l’article :
« Nous voulons être les pionniers du commerce électronique au Togo et tirer parti de la forte coopération multiforme entre la Chine et le Togo, le premier pays carrefour commercial en Afrique de l’Ouest “, a déclaré Yuan Li, fondateur de JMSA-MALL, à Xinhua vendredi dernier à Lomé.
«Nous faisons la promotion d’échanges commerciaux directs, entre les clients africains et les commerçants chinois, de produits authentiques chinois à des prix intéressants “, a-t-il expliqué.

Des appareils électroniques jusqu’aux machines agricoles, la plate-forme offre une large gamme de produits chinois, qui sont vendus au Togo, ainsi que dans plusieurs autres pays de la sous-région tels que le Bénin, le Niger, le Ghana et le Burkina Faso.

Toutes les principales cartes de crédit sont acceptées comme mode de paiement ainsi que le système de paiement local via mobile money – Flooz (Moov). Il y a une politique de garantie avantageuse, et les articles sont entreposés à leur arrivée dans un bâtiment local pour les livraisons, au cas où l’article commandé n’est pas déjà disponible en stock dans leur entrepôt local. En outre, JMSA-MALL offre aux PME locales l’occasion de vendre leurs marchandises à travers leur plateforme. En apparence, cela semble bien – en supprimant les intermédiaires, ils peuvent offrir des meilleurs prix.

Yacine Bio-Tchané, notre collègue béninoise a aussi ses marques à Lomé. Ensemble, nous avons discuté de l’impact potentiel de ce lancement dans le contexte local, ainsi que des implications plus larges. Voici quelques réflexions:

Est-ce que cette plate-forme de vente « directe au consommateur» a un impact sur les commerçants locaux qui se rendent en Chine pour se procurer leurs produits?

Yacine a fait observer qu’à partir du moment où la plate-forme vend tout, des appareils électroniques aux machines agricoles, si certains éléments coûteux et lourds ne sont pas facilement disponibles au Togo, mais pour lesquels il existe une demande,ils peuvent être achetés en ligne et les utilisateurs pourront profiter de cette occasion. Aller à la Chine, identifier le bon produit au bon prix et l’expédier au Togo est long et coûteux (1). La plate-forme e-commerce réduit considérablement les coûts de transaction, ce qui la rend très attractive pour les acheteurs locaux.

Les produits chinois sont connus pour être moins cher (en prix et parfois en qualité) que les autres produits de sorte qu’ils sont très compétitifs et accessibles à de nombreux Togolais, surtout compte tenu du faible pouvoir d’achat. Si, au lieu d’aller au marché et de se promener à la recherche de ces produits, tout le monde pouvait acheter en ligne, les gens préfèreraient le faire. Cependant, alors que le Togo a 67% de pénétration des téléphones mobiles, moins de 10% de la population a accès à l’internet. Cela implique que la solution de commerce électronique est accessible à peu de personnes, mais cela pourrait déclencher une utilisation accrue de l’Internet par les commerçants.

Bien que l’article ne dise pas quels sont les principaux acheteurs (nationalité), il dit qu’ils couvrent plusieurs pays. Il ne serait pas surprenant de voir que la demande soit plus orientéevers le Ghana par exemple.

Le commerce direct de la Chine crée des marchandises

D’autre part, étant donné les coûts, le temps et les tracas pour aller en Chine à la source et expédier des produits à vendre au pays, cette plate-forme pourrait être attrayante pour les commerçants locaux eux-mêmes, à la fois au Togo, et au niveau régional. Comme le fait remarquer Yacine, la demande pourrait ne pas émaner du Togo même mais plutôt des pays voisins. Selon le fondateur de la plate-forme, le Togo est une plaque tournante du commerce en Afrique de l’Ouest pour la Chine.

La Chine a accru le commerce et les relations diplomatiques avec le Togo au cours de la dernière décennie. Il est même dit que la Chine est devenue le premier partenaire financier du pays. Les entreprises chinoises opèrent dans les industries, l’agriculture, le commerce et la construction. Ils créent de l’emploi et sont en concurrence avec des entreprises locales dans la vente de certains produits tels que les tissus.

Le fait que cette plateforme d’e-commerce soit tournée vers les consommateurs et qu’elle soit soutenue par un entrepôt local rempli de marchandises produits par la Chine est symbolique. Pour Yacine, le message le plus fort que la plateforme envoie est que les Chinois sont entièrement installés au Togo. Ce genre d’investissement à long terme, associé à leurs investissements accrus dans les industries, est déterminant. La Chine n’est plus un simple partenaire qui vient pour des projets périodiques, maintenant c’est un acteur important qui influe sur le comportement des consommateurs. Elle est sa propre image de marque, avec le lancement de ce consommateur face à la boutique en ligne.

Géographiquement, le Togo est bien placé pour toucher facilement l’Afrique de l’Ouest anglophone et francophone. L’e-commerce est déjà en train de décoller de façon exponentielle sur le marché géant du Nigeria, mais il en est encore à gagner du terrain dans les autres pays voisins. La Côte-d’Ivoire a quelques acquis, mais elle est encore à ces premiers jours. Traditionnellement, les Chinois ont attendu que les marchés soient à maturité avant de les inonder avec leurs prix plus bas – le marché du téléphone mobile illustre cela.
Ce lancement de la plateforme semble précoce pour les perspectives de l’e-commerce (de même que les paiements mobiles), mais pas du point de vue des tendances du marché et du commerce mondial.

Les industries manufacturières de la Chine ressentent les effets rétrécissement du marché mondial, et les problèmes de surcapacité. Le marché intérieur a toujours l’axe majeur de leur développement, ceci semble êtreleur première tentative sur un autre marché. Le commerce informel entre l’Afrique et la Chine n’a pas entièrement été sous le radar –les compagnies aériennes africaines et chinoises ont été les premières à répondre à la demande. En outre, il y a d’autres changements en cours de réalisation qui impacteront directementl’Afrique de l’Ouest, comme cerécentarticle de CNN le montre:

Au cours des 18 derniers mois, bien que des chiffres concrets soient difficiles à trouver, des centaines – peut-être même des milliers – d’Africains sont soupçonnés par les habitants et les chercheurs d’avoir quitté Guangzhou.

La dépréciation du dollar dans les pays d’Afrique occidentale dépendante du pétrole, associée à la politique d’immigration hostile de la Chine, le racisme généralisé, ainsi que le ralentissement et l’échéance économie, indique que Guangzhou perd son avantage concurrentiel. […] Alors que la Chine devient moins rentable, de nombreux Africains ressentent avec plus d’acuité les aspects négatifs de la vie la bas.

Si la montagne ne peut pas soutenir Mahomet, pourrait-elle au moins réduire les coûts en construisant des entrepôts appuyés par des marchés en ligne? Les centres d’entreposage de marchandises chinoises ne sont pas inédits sur le continent africain, l’Afrique australe dispose déjà d’un certain nombre, tandis qu’il a été dévoilé que la Chine finance la plate-forme logistique de la Tanzanie. Comme l’a déclaré le fondateur de JMALL, cette “plaque tournante du commerce qu’est le Togo semble être un nouveau pays partenaire. Est-ce que la plateforme d’e-commerce est un projet pilote pour tester efficacementle coût régional du marketing B2C?

Les géants du e-commerce Chinois comme Alibaba ont montré la voie avec les efforts de leur agent pour ouvrir les marchés ruraux difficiles de l’arrière-continent. C’est seulement une question de temps avant qu’un autre type d’intermédiaires n’apparaisse au Togo (et ailleurs) et offre des services similaires pour faciliter le commerce. Cette fois, cependant, ce sera depuis le confort de leur pays d’origine, car ils assistent les commerçants et les consommateurs avec les achats en ligne. Pris ensemble avec des investissements continus dans les systèmes de paiement via mobile money, les initiatives d’inclusion financière et l’utilisation du modèle d’agence – la Chine semble avoir saisi un excellent espace d’opportunité à explorer.

 

(1) Voici un documentaire qui suit un commerçant congolais pendant son shopping à Guangzhou, en Chine, cherche à remplir son conteneur avec des marchandises exportables. Il donne une assez bonne idée de l’expérience client.

Will Cross Border Mobile Money Boost intra African Trade and Regional Integration?

cross border MMTOver the past 18 months, since I started tracking the spread of cross border mobile money payments across the African continent, there has been visible progress in leaps and bounds, as documented by the GSMA. In fact, back then, I’d written:

Top down reportage on banking and interoperability seems to focus only on the customer’s individual needs, and overlooks their agency as entrepreneurs, traders and business people.

The map above has been taken from the GSMA’s Mobile Economy 2015 report, and the 2016 report reproduces it as well. Now, the role of mobile money transfers in facilitating cross border and intra African trade is finally being recognized for its potential and cost savings. Author Ashly Hope lays out clearly the high cost of remitting money in the SADC region:

cost of remittance sadcSouth Africa and Tanzania are the largest sources of remittance, yet their transaction costs are significantly higher than the Sub Saharan average of 9.7% (which in turn is the most expensive region in the world where the average cost is now ~7.4%). And this is only one regional grouping.

It is when we look at the penetration of mobile money, that we see something that hints at the digital economy emerging in East Africa (birthplace of Mpesa in case you weren’t aware).

Given teh pace of change, we can safely assume that the figures given above have only increased since 2014. Tanzania’s mobile money market has been frequently cited for its growth and opportunity – it is also outstanding for the level of interoperability within the telco ecosystem.

In the previous article, we noted that Tanzania had just flagged off a Chinese funded regional logistics and trade hub which would include a local footprint for the distribution and sales of China made goods in the form of a warehouse.

“The trade hub will also help Tanzanians especially women to buy products here instead of travelling all the way to China, hence cutting costs down,” said Ms Janet Mbene, Deputy Minister of Industries & Trade.

Savings on travel and shipping is bound to translate into increased inventory purchases, and thus value and/or volume of goods traded. Taking the context of the entire East African Community’s “informal” cross border trade, and the visualization of the interconnections now provided by various mobile money transfer systems in the map above, one can safely start to forecast the potential gains to both traders, and the telcos, as the landscape of the local operating environment begins to change in response to infrastructure investments.

Whether this potential opportunity is exploited by the region’s traders, or overlooked and missed due to the existing digital divide, is the question that remains to be answered. The EAC’s mobile economy (~96% prepaid) needs to start thinking of itself as more than just telco led and impact hub driven, and get down to the ground at the fringes for the future.

Will Direct Access to China-made Goods Disrupt Trade in West Africa’s Consumer Market?

jmsamallThe first e-commerce platform for direct trade of China made products has just been launched in the West African country of Togo. Squeezed together with the Benin Republic between the larger, and better known countries of Nigeria and Ghana, Togo is a small francophone country of around 7 million people. Per the article:

“We want to be the pioneer of e-commerce in Togo and to capitalize on the strong multifaceted cooperation between China and Togo, a premier trade hub country in West Africa”, Yuan Li, founder of JMSA-MALL, told Xinhua Friday in Lomé.

“We are promoting a direct trade of genuine Chinese products with fair price between the African customers and the sellers in China,” he explained.

From electronic devices to farm machines, the platform offers a wide range of Chinese products, which are sold in Togo as well as other countries like Benin, Niger, Ghana and Burkina Faso in the region.

All major credit cards are accepted for payment as well as the local mobile money payment system – Flooz. There’s a generous return policy, and shipments arrive at a local brick and mortar shopfront for pickup and returns. That is, if the item ordered isn’t already available in stock at their local warehouse. Furthermore, JMSA-MALL offers local SMEs an opportunity to sell their wares through their platform. On the surface, this looks good – by cutting out the middleman, they can offer lower prices.

Yacine Bio-Tchane, our Beninois colleague also has a footprint in Lome, Togo. She and I discussed the potential impact of this launch in the local context, as well the broader implications in general. Here are some thoughts:

Will this ‘Direct to Consumer’ (DTC) platform have impact on local traders who travel to China for goods?

Yacine made the observation that since the platform sells everything from electronic devices to farm machines, if some pricey and heavy items are not readily available in Togo but for which there is a demand can be bought online, users will take advantage of that opportunity. Going to China, identifying the right product at a good price and shipping it back to Togo is timely and costly (1). The e-commerce platform significantly reduces transaction costs, which makes it very interesting for local buyers.

Chinese products are known to be cheaper (in price and sometimes quality) than other products so they are highly competitive and accessible to many Togolese, especially given the low purchasing power. If, instead of going to the market and walking around in search of those products, anyone can buy it online, people will prefer doing so. However, while Togo has 67% penetration of mobile phones, less than 10% of the population has access to internet. This implies that few consumers have access to the ecommerce solution but it could trigger an increased use of internet from traders interested in China made goods. Although the article doesn’t say who the top buyers are (nationality), it would not be surprising to see that increase in demand is being pulled by Ghana.

Direct trade of China made goods

On the other hand, given the costs, time, and hassles of going to China to source and ship products back home for sale, this platform might be attractive to local traders themselves, both in Togo, and regionally. As Yacine observes, demand might not be from Togo itself but rather the neighbouring countries. As the founder of the platform says himself, Togo is a critical trade hub in West Africa for China.

China has increased trade and diplomatic relations with Togo in the past decade. It is even said that China has become the first financial partner to the country. Chinese companies operate in industries, agriculture, commerce and construction. They create employment and compete with local companies in selling certain products such as fabrics.

The fact that this e-commerce platform is a B2C marketplace backed by a local warehouse full of China made goods is a signal of this investment. For Yacine, the strongest message the launch of this platform has sent is that the Chinese are fully settled in Togo. That kind of long term investment, coupled with their increased investments in industries is a game changer. China is no more a simple partner coming in for projects but has now become an important actor with influence on consumer behaviour. This is a big pivot in its brand.

west_africa_2_storyGeographically, Togo is well positioned to easily access both anglophone and francophone West Africa. E-commerce has been taking off exponentially in the giant market of Nigeria, but has yet to gain traction in other neighbouring countries. Ivory Coast has seen some gains, but it’s in an early stage. Traditionally, the Chinese have waited for markets to mature before flooding it with their lower priced variations – the mobile phone market is one such example. The launch of this platfrom seems rather early from the e-commerce (and mobile payments) perspective but not from the point of view of global trade and market forces.

China’s manufacturing industries are feeling the pinch of shrinking global trade, and the problems of over capacity. The domestic market has been one major focus for development; this initiative seems like an attempt at creating another. Consumer goods trade between Africa and China has not entirely been under the radar – both African and Chinese airlines were the first to respond to demand. Further, there are other changes afoot that directly impact West Africa, as this recent article from CNN shows:

Over the past 18 months, although concrete numbers are hard to come by, hundreds — perhaps even thousands — of Africans are believed by locals and researchers to have exited Guangzhou.

A dollar drought in oil-dependent West African nations, coupled with China’s hostile immigration policies, widespread racism, and at-once slowing and maturing economy, means Guangzhou is losing its competitive edge. […] As China becomes less profitable, many Africans feel the downsides of living there more acutely.

If the mountain cannot support Mahomet, could it cut costs by building warehouses fronted by online marketplaces? Warehouse centres for China made goods are not new to the African continent, southern Africa has quite a few, while Tanzania’s China funded logistics hub has just been flagged off. The JMALL founder’s opening statement positions Togo as another such ‘trade hub’ in West Africa. Is this e-commerce platform a pilot to test regional B2C marketing cost effectively?

Chinese e-commerce giants like Alibaba have shown the way with their agent led efforts to open up the challenging rural markets of the mainland’s hinterlands. It’s only a matter of time before a different kind of intermediary springs up in Togo (and elsewhere) offering similar agent services to facilitate trade. This time, however, it’ll be from the comfort of their home countries, as they assist traders and consumers with online purchases. Taken together with ongoing investments in mobile money payment systems, financial inclusion initiatives, and the utilization of the agency model – China seems to have grasped an excellent opportunity space to begin exploring.

 

(1) Here’s a documentary following a Congolese trader during her shopping spree in Guangzhou, China, looking to fill her container with tradeable goods. It offers us insight on her customer experience.

This article has been translated into the French by Yacine Bio-Tchané

Platforms that aggregate small businesses can integrate the informal with the formal economy

Continuing my thoughts on Nilekani’s vision introduced in the previous post, I want to use this post to focus on the key element of what captured my imagination from his article “The New Road to Nirvana“:

So manufacturing is squeezed on one side by Chinese overcapacity and on the other side by extreme automation. So the service sector is where the action is.

The era of large companies as we knew them is also over. It will be a world of platforms that aggregate small companies.

Amazon and Flipkart will aggregate goods made by lakhs of vendors and provide a platform to sell them. Similarly, Ola or Uber will aggregate millions of drivers who will work on the platform, Practo will aggregate doctors and patients and so on. Aggregation by platforms is the way that jobs creation will happen.

This platform aggregation will also lead to formalisation of the economy. India’s economy is largely informal. But once, say, a taxi driver becomes part of Ola, then in fact he becomes part of the formal economy.

He is able to use data, get a loan, buy a car, start paying taxes. So the formalisation of a few hundred millions of Indians will spur growth and that is where our focus should be.

My larger point is that it is now all about domestic not export, services not manufacturing and platform aggregation not big companies.

I will be writing further on this concept and exploring its implications for the African context, particularly East Africa.

 

Digital literacy plus “sharing economy” platforms can offer formal employment for African youth

Back in February of this year, I made a note on the inherent potential of Uber (and related apps) to deliver the data necessary for the informal taxi sector in Kenya to clamber onto the path to formalization. Today, I came across an article reflecting on the potential for formalization in India that quotes Nandan Nilekani:

“…once a taxi driver becomes part of Ola, then in fact he becomes part of the formal economy. He is able to use data, get a loan, buy a car and start paying taxes.”

Tracing the original cover story by Nilekani led to his observation that simply  providing these platforms were not enough. Literacy and numeracy were the deal breakers, and a necessary ingredient for the magic of employment, income, and more regulated economy. From his op-ed on India’s domestic future:

Among the government’s first priorities should be the improvement of literacy and numeracy for everybody. Because for one to participate in this [platform based aggregation of microSME services] economy, you require basic literacy and numeracy. For example, if you have a taxi driver on Ola, he should be able to read a message from you or his map and reach where you are. All the other countries that grew rapidly, whether Korea, China or Japan had already achieved universal literacy before their rise.

There are many countries on the African continent which have a headstart on English literacy and numeracy among their youth, due to history and cultural development, especially the Church. Kenya’s literacy and English language facility is easily ahead of India’s by double digit percentage points among her youthful population. Yet there are few locally beneficial platforms that have successfully managed to aggregate – Nilekani’s insight on job creation offers a glimmer of light, and thus opportunity. Look:

The era of large companies as we knew them is also over. It will be a world of platforms that aggregate small companies. Amazon and Flipkart will aggregate goods made by lakhs of vendors and provide a platform to sell them. Similarly, Ola or Uber will aggregate millions of drivers who will work on the platform, Practo will aggregate doctors and patients and so on. Aggregation by platforms is the way that jobs creation will happen. This platform aggregation will also lead to formalisation of the economy.

Ironically, the technologists aiming at the African continent seem to have grasped only the basic element of this opportunity – Digital literacy needs to come first before financial inclusion – as megadonors and funders throw their weight behind their pet projects skewing the emphasis of development directions. But financial inclusion cannot arrive without viable, feasible, and desirable pathways to formalization i.e. economic inclusion. And, logic dictates that its inclusion that empowers.

What if we take a leaf from India’s book for transforming Africa ? Nilekani is not only one of the cofounders of India’s transformational technogurus – Infosys of Bangalore – but also the man who led the Aadhar project – the world’s largest biometric ID system. As the first article observes:

All this is possible because of the enabling circumstances: a young population—65% of India is less than 35 years of age—of which a greater proportion are more literate than the older age-groups; growth; adoption of mobile-based apps; and a push towards a cashless economy.

[…]

What all of this is doing is creating an information technology highway seeking to connect over 1 billion people. This is the key to the vision Nilekani espouses. As a result, a generation of small businesses and micro entrepreneurs can now be part of the platforms that are springing up on this national IT highway. Surely, this integration of the informal into the formal economy can only augur well for India and its denizens.

A country like Kenya should be on this pathway too, in fact, even faster than India due to the presence of the very same enabling circumstances, and then some. What has been missing is the vision that Nilekani so generously provided us – that of considering platforms as aggregators, and as aggregators, stronger than scale of any one singular organization.

Harambee, they call it, can be digitized. Harambee, as an app and/or a digital platform aggregating micro entrepreneurs, service providers, wholesale and retail traders et al, can provide that same facility for the integration of the formal and the informal. It can transform the nation, and change the entire East African economic landscape, auguring just as well as for India and her denizens.

A Framework for New Market Entry Strategy

There are two parts to this article: The first is a revision of the lenses through which we assess the landscape within which your new market strategy will be expected to operate; and the second covers your implicit assumptions at inception, as well as gaps in your  mental model.

1. The lenses for innovation need a universe to ground them.

The development of the first generation prototype lenses for identifying the sweet spot of innovation in the operating environment prevalent south of the Sahara desert on the African continent are described here. The evolutionary path from the original lenses (shown below) is described.

ideo modelPeople, Pesa, Place were used to replace the words Users, Marketplace, Technical as a means to provide cues for contextual exploration. However, in practice, this revised Venn Diagram (shown below) was still missing a means to distinguish the very different landscape of an emerging market. That is, it overlooked the need to consider the whole as an ecosystem in its own right.

The formal definition of a Venn Diagram, taken from the Oxford Dictionary is as follows:

A diagram representing mathematical or logical sets pictorially as circles or closed curves within an enclosing rectangle (the universal set), common elements of the sets being represented by intersections of the circles.

Without the universal set being represented in these diagrams, it was difficult to create a cue for identifying and describing the often inaccurate yet implicit assumptions made at the very beginning of a new market strategy formulation. And, this gap often revealed itself in form of cognitive dissonance between the observed marketplace and customers, and the tactics intended to support the strategy.

Here is a revised version of this Venn Diagram, enclosed in the rectangle.

VennInformalBy changing the description of the universal set, as shown below, one is then able to evaluate the entire ecosystem holistically.

VennMCCThere is a chasm that divides the value propositions of the producers (sellers, marketers, MNCs) from mainstream consumer culture and the mindset and worldview of the buyers (erstwhile bottom of the pyramid, or emerging consumers from cash intensive, informal economies), and this chasm is where new market strategies tend to falter, and fail. This is particularly noticeable in the African consumer market, especially when considering the mass majority.

2. Questioning the assumptions underlying your value proposition

By adding the missing universal set to the Venn Diagram, one is then forced to acknowledge the systemic differences between one’s own consumer culture, and the vastly different one in this new market. It may indeed be informal and rural, as shown in the sample above, or, it may be the urban consumer markets in the sprawling cities south of the Sahara. Even then, a significant proportion of the economy falls outside of the formal structured environment prevalent in most of the sophisticated consumer markets of the global economy.

And what tends to happen is that elements or concepts from the formal economic ecosystem are introduced or implemented isolated from the supporting information systems and infrastructure. One or two elements from one ecosystem will not thrive in an entirely different ecosystem if there is not fit or context for them to succeed. A clear example is what happens when financial services and tools are introduced under the guise of inclusion.

By going back to the foundation of one’s assumptions, one can identify where the gaps might lie in the value propositions that make so much sense in one’s own context when considering them for consumer segments who might never have been exposed to the same marketing messages, or conditioned to expect “New” to mean “Improved”.

This exercise also provides a cue to consider the systemic differences between the two operating environments, and to assess whether the value proposition or the solution can be introduced as is without the need for an entire support network surrounding it.

 

 

Note: I have used the African context as the working example, but the basic framework is flexible to use for any set of disparate operating environments.