Posts Tagged ‘market forces’

“No Ordinary Disruption” – Africa’s Transformation

McKinsey consultants have released a new book – No Ordinary Disruption – looking at global mega trends and market forces that are forcing a rethink of the foundations of their intuitive knowledge. Assumptions are to be challenged and questioned, they say, as these changes impact a deeper transition in the way the world works. Even as all eyes are on Asia, the fastest growing region on the planet, it behooves us not to overlook the second fastest growing and often overlooked opportunities of the African continent.

“Well, there was a reason why: growth has moved elsewhere—to Asia, Latin America, the Middle East.”

B6vtjfTIYAAq1mfLet’s look at their key points and reflect upon Africa’s transformation.

McKOneThe first trend is the shifting of the locus of economic activity and dynamism to emerging markets like China and to cities within those markets. These emerging markets are going through simultaneous industrial and urban revolutions, shifting the center of the world economy east and south at a speed never before witnessed. […] Perhaps equally important, the locus of economic activity is shifting within these markets.

FG-Seizing-Africas-Retail-Opportunities-2Numerous reports are pointing out the immense potential inherent in African urbanization and population growth, for retail, for real estate and for opportunity. Not all 54 countries on the continent are seeing economic growth as its unevenly distributed, just like in Europe. Some points of note:

Nigeria became the largest economy last year, surpassing South Africa the traditional leader, after their economy was re-based. Kenya has just been ranked as the 3rd fastest growing economy. Rwanda is also expected to show similar growth – both are in the 6 to 7% range. Ethiopia is making strides in infrastructure and industrialization – attracting manufacturing as well as high street brands like H&M and Primark. China has been looking closer at the lower costs of labour on the African continent.

What is notable is that instead of the usual sources of wealth like oil or other natural resources, most of this emerging  economic growth is coming from modern sectors like telecom and services. Entirely new industries such as mobile gaming are gaining traction and e-commerce is another fast proliferating area. Cote D’Ivoire has gained visibility with its embrace of online marketplaces while the Nigerians’ penchant for shopping has captured attention at home and abroad.

All this urbanization means a boom in construction – transportation infrastructure, power plants, dams, houses and malls – cement magnate Dangote has already invested over a billion dollars across the entire continent while competition hasn’t dented LaFarge’s healthy profits.

mckTwoThe second disruptive force is the acceleration in the scope, scale, and economic impact of technology. Technology—from the printing press to the steam engine and the Internet—has always been a great force in overturning the status quo. The difference today is the sheer ubiquity of technology in our lives and the speed of change.
[…]
Processing power and connectivity are only part of the story. Their impact is multiplied by the concomitant data revolution, which places unprecedented amounts of information in the hands of consumers and businesses alike, and the proliferation of technology-enabled business models, from online retail platforms like Alibaba to car-hailing apps like Uber.[…]Entrepreneurs and start-ups now frequently enjoy advantages over large, established businesses.

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Source VC4Africa

The impact of the democratization of technology has already made itself visible. Incubators and tech hubs are popping up across the African continent. New startups are emerging almost every other day. One of my favourites is Cladlight –  a safety jacket with indicator lights to be used by motorcycle taxis.

Whether its Uber or grocery delivery in Lagos and Kampala – apps that leapfrog the lack of adequate infrastructure and distribution systems are disrupting their local markets. Technology, both at the front end and the back is expected to change the face of retail and service delivery.

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This is the Ethiopian capital’s new light rail system.

And its not just computers and smartphones – a variety of solar powered products, distinguishing themselves with payment methods and business model innovation, are lighting up the formerly dark continent, while China’s ambitions in high speed rail will soon connect the unconnected.

mck3The human population is getting older. Fertility is falling, and the world’s population is graying dramatically. While aging has been evident in developed economies for some time—Japan and Russia have seen their populations decline over the past few years—the demographic deficit is now spreading to China and soon will reach Latin America. For the first time in human history, aging could mean that the planet’s population will plateau in most of the world. […] But by 2013, about 60 percent of the world’s population lived in countries with fertility rates below the replacement rate. This is a sea change
Euromonitor-populationCall it the demographic dividend or the African youth bulge, but the cradle of mankind remains the youngest continent on earth. This is one of the reasons why Africa matters for the emerging future.
mck4The final disruptive force is the degree to which the world is much more connected through trade and through movements in capital, people, and information (data and communication)—what we call “flows.” […] “South–south” flows between emerging markets have doubled their share of global trade over the past decade. The volume of trade between China and Africa rose from $9 billion in 2000 to $211 billion in 2012. […]the links forged by technology have marched on uninterrupted and with increasing speed, ushering in a dynamic new phase of globalization, creating unmatched opportunities, and fomenting unexpected volatility.

aftzIncreasing regional integration for trade and commerce are changing the economic landscape of the continent. At the forefront is the East African Community, who have already issued a single tourist visa for Kenya, Rwanda and Uganda whilst pushing forward with infrastructural development and various trade related initiatives to tighten their financial and commercial links.

smdc-silkroad-21st-mapFlows of information mean increasingly connected consumers, as smartphone penetration and mobile subscription growth puts the internet in the hands of even the nomadic pastoralists. Social media use is moving beyond friends and family to become platforms for informal trade and banking. And mobile money’s ability to provide financial inclusion profitably is driving the continent’s telcos to overcome their competitive nature and join hands in interoperability.

CDV_KdpWIAAiT23.jpg large

Afropolitan, Africapitalist, Afro futurism – all of these are ways to name the basic trend that Africans are finally reaching out to grab their turn on the global stage. Most recently Credit Suisse named Tidjane Thiam, originally from Ivory Coast as their new CEO. Africa’s future is being transformed by the global forces shaping the world and cannot afford to be overlooked.

As the authors conclude:

The fact that all four are happening at the same time means that our world is changing radically from the one in which many of us grew up, prospered, and formed the intuitions that are so vital to our decision making.[…] Yet we work in a world in which even, perhaps especially, professional forecasters are routinely caught unawares. That’s partly because intuition still underpins much of our decision making.[…] If we look at the world through a rearview mirror and make decisions on the basis of the intuition built on our experience, we could well be wrong. In the new world, executives, policy makers, and individuals all need to scrutinize their intuitions from first principles and boldly reset them if necessary. This is especially true for organizations that have enjoyed great success.

Exploring the market forces acting on the cyber cafe industry in Kenya

This post continues on the challenges of estimating size and value of an untapped market in the developing world – in our current case, it is the cyber cafe industry in Kenya.  A critical aspect of this exercise will include assessing the impact of a variety of market forces acting on the industry in the present day as well as exploring the impact of trends on the near future.
Its only too easy to say that mobile phones will threaten the future of this industry as this June 2011 article does, but how valid is this assertion, really? Complicating the situation is the extremely rapid pace of change – for example the number of internet users in Kenya more than doubled in less than a year, from the end of 2009 to the third quarter of 2010, most via their mobile phones.
Yet, the results of a recent survey found on this Afrinnovator post by Mark Kaigwa in May 2011, contradict the dramatic headline of the June 2011 article:


via Afrinnovator

Kaigwa says: To unpack that a little further, the emerging trend is that the first experience of the internet has become mobile. This still doesn’t rule out the cyber cafe as the mobile experience on feature phones still cannot replace the “full-qwerty-keyboard-got-my-flashdisk-upload-that-document-and-email” use of cyber cafes but as far as social networking and general browsing, the mobile is the device of choice.

And previously in May 2010,  Oluniyi Ajao asked from Accra, Ghana “Are mobile phones pushing cyber cafes out of business?“, where he ends confidently with:

It is clear that mobile phones, are pushing cyber cafes out, the same way public phone booths and “communication centres” have become endangered species. What waits to be seen is how long the few cyber cafes that remain would last. Would they close shop or evolve their business model? Time would tell.

but just a few months before in Sept 2009, Wayan Vota wrote  Cybercafes: Still a vibrant and viable business model with some thoughtful reasons supporting his argument:

Growing, not shrinking, need for public access
Miguel’s point I most disagree with is the suggestion that there is a decreasing need for cybercafes in Africa because of 4P Computing:

Outside of tourists locations, they seem to be drying up everywhere to some degree as more and more of us travel with laptops or at the very least, wifi/highspeed data enabled phones that can do simple browsing anywhere we go.

While he and I may travel with netbooks and iPhones, the majority of Africans do not have such electronica, nor are they buying the expensive data plans that allow for mobile web access. They closely monitor their communication expenses, budgeting for Internet access out of meager daily wages.

Yet more and more business and government services, and professional social capital is moving online. Stores like Rachels’ Bargain Corner and Kenya’s eGovernment initiatives require full-screen Internet access. And with Facebook driving ICT use in Africa, the next professional networks will be virtual, not in person.

So as high-speed Internet and cool new gadgets increase usage by elites, there will be even more need for average Africans to get online, economically, through public access cyber cafes offering Internet access in multiple formats.

More than decline, this is the time to invest in African cybercafes!

So, the question remains unanswered, will the industry shrink or grow in Kenya? (Sept 18th, 2011)

Like any industry, cyber cafes are not all the same. Location matters as does size, speed and the variety of services on offer.  This background work  helps us to frame the broad questions we need to uncover answers to, so as to find the patterns that will help us evaluate the influence and impact of these market forces.

What does that mean? In this specific case, where if we are faced with conflicting information, then one of the key issues to find out will be the cost and ease of access to substitutes i.e. internet enabled mobile phones, cost of data and the patterns of usage behaviour, prevalent in the locale serviced by that cafe.

We’ll also need to dig up the CCK’s research results and then evaluate whether these substitutes are having a greater impact on the highly visible urban locations or is this threat a longer term trend and one that will affect a cybercafe regardless of whether its rural or urban.  And finally, we’ll have to actually get out there and take a closer look  in order to understand what is really happening.

Case study of design strategy failure: Whirlpool World Washer for emerging markets

This is a comprehensive study of the introduction of an automatic washing machine, the World Washer, into the Indian market, by Whirlpool Corporation in 1990. Conceived as an important part of Whirlpool’s global strategy in the late nineteen eighties, it was designed for the emerging markets of Mexico, Brazil and India. It failed dramatically and resulted in Whirlpool having to purchase obsolete twin tub technology from Korea for their next product launch in India.

This paper attempts to describe the existing market at the time of the launch 1988-1990; Whirlpool’s global strategy and the part played by their design departments; the intersection of strategy and design; and, to analyze the reasons for the World Washer’s failure.

“First, you have to ascertain which standards have already been established by the competition. The product won’t be accepted if it doesn’t live up to those standards. Secondly, you have to look at the environment in which the product will be used.” ~ Dr Pia Honold, Center for User Interface Design, Siemens AG

Impact of mainstreaming and commodification of cyber cafe services

Central Business District, Nairobi, 6th October 2011

Around 2007, the urban cyber cafe industry began to display signs of maturing as the market saturated and the services specific to internet access underwent a process of commodification.  As it came to be perceived as no different a business than setting up a corner kiosk or hot dog stand, there was a shift in the profile of owner/operators. Many employed professionals such as doctors, teachers, accountants et al purchased going concerns as a means to increase their income streams, considering it no different from owning any other type of  shop which could be manned and run by employees during the day.  While computer literate, few in this new segment of owners were the computer savvy technical specialists or hobbyists who’d originally set up internet operations as a business nor were their employees for the most part.

Given this context, Mathew, who runs a thriving cyber cafe business spread over three towns a couple of hours north of Nairobi, articulated three reasons why many cybers were seen to have shuttered their business:

1. Gaining a reputation for unreliability – Inexperience and/or lack of knowledge on basics like virus management, maintenance or even not knowing how to make all the equipment work meant that systems were often down or not working properly quickly leading to customers avoiding the shop.

2. Quality and training of staff – There would be a difference in operations if the owner were to check in with the business and dealt with issues as they arose rather than showing up once a week for example. Finding qualified people to manage the cafe in the meantime, ensuring that at least one person with the requisite technical knowledge was at hand or on call was imperative to ensure the smooth running of the operations and gaining customer confidence regarding the quality of services offered.

3. Customer relationship management – Thus, building relationships with customers, ensuring loyalty and repeat returns over the long term was of importance to sustain the business.  Mathew himself had a sophisticated customer loyalty program in use across his three cafes – a smart card which could be purchased for differing amounts in advance and printed with the customer’s photograph. He had set up a system by which his staff could monitor and track minutes used by this user base across the three different locations. It ensured loyalty as well as provided an upfront cash payment that is one of the benefits of a prepaid business model.

Perhaps this was why the decline was being seen so obviously in urban locations accustomed to having a cyber at every corner. In Mombasa, one of our interviewees mentioned that it felt like there was one in every building.  The urban industry had matured to the point that a cyber was as ubiquitous as an MPesa dealer or Coca Cola kiosk with the subsequent assumption by many that it could be run as easily as any other business. This aspect does not diminish the impact of other market forces such as internet enable mobiles and affordable data plans and modems but does help explain why we kept hearing that business was growing whenever we stepped out of the city.

As technology diffuses outward from the urban metros, the cybers are seen in ever smaller market towns and highway crossroads, that is, the industry is still in its growth phase, though certainly not in its infancy. A short conversation with a small town mobile shop assistant informed us that they were selling an average of 5 broadband modems a month and she herself found it cheaper and more convenient to browse via her phone. Another young man employed by a national operator observed that education was a critical factor as well – not in terms of the basics, as the region he supported had a very high literacy rate, but in terms of locales where more young people were going off to college and university, being exposed to the potential of this new technology then bringing it back home for it to spread further.

What this seems to imply is that its the casual or social browser – the chatting on IM, the Facebooking, the occasional email – who seems to have cut down on their cyber visits, and this is often the largest segment of people going online. The hard core enthusiasts, the business users or anyone who has not yet invested in their own set up but prefers the “comp” to quote one young man, aren’t abandoning their trips.

What is happening however to the industry as a whole is a natural evolution. In the city, its the innovators who are thriving even as the basic shops decline – a case of may the fittest survive. None among the knowledgeable IT savvy owner operators ever even considered the mobile as a threat to their business, perceived or otherwise. The only constant response to the subject was that of the pricing plans mentioned earlier.

While the answer to the question of whether its mobiles that are pushing the cyber cafes out of business seems to increasingly be a No, our exploration of market forces acting on the industry is still throwing up factors that we had not taken into consideration when we began.

Observed market forces acting on the changing mobile landscape in East Africa

About two years ago I remember making an observation that I couldn’t seem to see any coherent patterns anymore the way I’d been able to by surfing the net for information. Flux I called it. Everything felt like it was in transition and nothing seemed to stay steady enough to grasp, much less describe. This was particularly apparent in the broad space around mobile phones, the BoP, emerging markets, Africa, and all the things that emerging futures used to write about so passionately. When the patterns stopped is when I think the writing petered away.

Reflecting on this now, particularly right after the intense experience of the Pivot25 conference in Nairobi, I wonder how much of that sense of ‘things are moving too fast to make any sense of so lets step back and away from it for a while’ was but one manifestation of the extremely wide ranging and rapid changes taking place here in Africa. Just over three years ago, when I first went into the field looking at mobile phones among the mass majority of Sub Saharan Africa, the landscape was reasonably clear. Certainly value added services were teh future but what form they would take was still unknown. Voice and text were expensive relative to average cash flow and the majority of mobile phone users were on prepaid or pay as you plans. The great majority, over 90% across the continent – the prepaid plans being the model that facilitated the uptake of subscriber growth at the rates that were already visible as significant in late 2007. The internet was an expensive luxury no matter how you accessed it and available airtime was hoarded like wealth.

Today, if asked, I would say that the landscape is still in flux and still evolving but now we are able to see some of the market forces acting on this rapidly changing environment. Here are some of them, with a particular focus on East Africa, led by Kenya:

  • Undersea cables connecting Africa to the global information network leading to lower cost of bandwidth and data
  • Spread of mobile money transfer and payment systems by operators across the continent
  • There’s been a disappearance of shops buying and selling used phones, you also don’t see as many signs offering phone repair. This needs to be explored further
  • Sub $100 Android smartphones launched in Kenya and Uganda, with other locations to follow
  • Significantly lower costs of voice and SMS
  • MPesa’s ubiquitiousness is now leading to the next level of innovation building on the layer of financial transactions
  • Mobile web uptake increasing daily with phone often only or default device for browsing

There’s more I’m sure but these seem to be the most visible influences, at this point of time and as far as I am able to tell without a focused study. Just yesterday I said that these are dynamic factors so its no more a case of so “what does it all mean?” when you connect these dots, it is more of a situation where we take these environmental conditions and attempt to explore a few scenarios of future evolution and paths of “what might it mean” – both from the point of view of the mobile phone industry as well as otherwise.

Does this environmental shift imply changes for consumer products? Retail? Pricing and business models? I think so but what it is and how it will influence change is yet to be determined.