Thursday, August 2, 2012

Acres of Aspirators

Harnessing Nigeria’s 100 million Rural and Semi-urban Market for Business Growth.

"How can businesses find it more attractive to exploit the local market fully before expanding overseas as more and more of the world's "poor" cities crave for urban consumable? We always talk about Public-Private Partnership, especially when government needs businesses to invest money but now we require the greater input from government and a few strategic moves by businesses.
The greatest impetus for businesses to expand their operations across the country, Nigeria for example, is when they can see very decent volume of demand opportunities in semi these areas, security for their resources and the infrastructure to enable their operations. Find out how innovation can facilitate rapid growth for your organization or government from unexpected and most often neglected  areas.

I attended two important events last year, one was the Daystar’s leadership summit and the other was the CEOs Forum organized by LEAP Africa. At these two events, some business leaders were speaking about their success stories and their plans for the future; at the first event, it was the Managing Director of a leading Indigenous Pay TV operator. He said that, to paraphrase, “we are growing very well despite the disappointment, as a matter of fact, we are expanding into several African countries, Namibia etc”. The second speaker, at the other event, who is the chairman of a listed Fast Food company, was no different in his company’s plans for growth. He said that the fast food company is fast now planning to open outlets in other African countries. Yet another Chairman of one of the foremost private TV stations and entertainment empire talked about his company’s plans for Africa-wide expansion. By now, am sure you would have recognized a re-occurring theme in each of these expansion plans: opening shops and businesses in other African countries by Nigeria companies.

 Just to be clear, international growth or global business expansion is not its self a sin or a bad business strategy. As a matter of fact it is plausible but the truth is that several case studies conducted at the Harvard Business School and Mckinsey show that most growth plan into foreign terrains fail even though you may not see the results immediately; especially when the company has yet to dominate its local market. To understand the dynamics of international business expansions, we need to ask and answer a few questions. The first important question we need to ask is “is there a large enough local market available, in, this case Nigeria? and the answer is maybe or yes. The second question is has the indigenous Pay TV operator or the Fast food company even opened shops in just 30% of cities in Nigeria, that is how fully have they exploited the markets? Have they created new market-spaces or consumer categories for their products and services? And we can go on and on but the answer to all will be a big No.
To paint a clearer picture of what am trying to say, let us examine a recent study by Mckinsey which shows that Consumer sectors in Africa are growing two to three times as fast as those in the countries belonging to the Organization for Economic Co-operation and Development (OECD).  And it also state that “This growth will create more consumer markets large enough to attract multinational companies” and that  " Africa's consumer goods and services present the largest of the four business opportunities the Mckinsey Global Institute identified”. In terms of numbers, the continent has about 316 million new phone subscribers signed up in since 2000 and out of that Nigeria has over 96 million subscribers (85 million GSM and 10 million Mobile CDMA, source NCC) out of a 150 million population as at January 2011.So if we could use this figure for a moment Nigeria actually commands close to 35% of consumer market opportunities and activities in Africa. This means that for every 3 companies looking for growth markets in Africa, 1 will come to Nigeria!
While I was thinking about the foregoing illustrations, a story quickly came to my mind and that is the story popularly known as Acres of Diamond. History has it that a certain man owned a piece of land but he was desperate to find a “greener pasture” so he sold the land, very cheaply to another man, so he could raise money to do some other things. The story goes on to tell us that the man who bought the land from him then discovered that, buried under the land were deposits and deposits of diamonds! Is this the story of what is happening in Nigeria today? Everyone knows that Nigeria is a country of importer-businesses(upstream); very few crude to finished products manufacturing is done within the country and now businesses are chasing growth overseas(Downstream). When will companies, known all over the world to be the true engine of economic development, begin to focus their resources on the Nigerian economy?
This paper is written as excerpts of the work I did on the topic: Leveraging Nigeria’s Population for Global Economic Advantage for the British Council Innovation 360 challenge. It went on to become a finalist in the competition. It outlines strategies and initiatives government and businesses can undertake to nurture and harness Nigeria’s teeming population as a veritable market, especially the semi-urban and rural areas, for the admiration and investment by businesses within and outside the country.
For those who are wondering, why would a company that can clearly see growth overseas stick to a country such as Nigeria. Well not all that glitters is gold. I will remind whomever it is that there are several benefits for doing business in your home country and several constrains the other way round and Nigeria’s unique population figures are very high but low penetrated market is very peculiar advantage for local businesses. Take the broadband internet market for example. Currently three (3) different company consortia have invested over $2 billion dollars in internet bandwidth and less that 1% of this bandwidth is being consumed. So what do you do? Aggregate marginal growth from different countries or focus and generate massive growth within a country you are already well established; where you have better legal advantage, access to government and understandable culture so on. For the sake of space and so as not to bore my well educated audience, I need not restate all the home-advantages for business operating in local markets but chief amongst them all is cost and in this hash global economic condition you better be careful.
What is the way forward? How can businesses find it more attractive to exploit the local market fully before expanding overseas? We always talk about Public-Private Partnership, especially when government needs businesses to invest money but now we require the greater input from government and a few strategy moves by businesses.
The greatest impetus for businesses to expand their operations across the country is when they can see very decent volume of demand opportunities in semi urban and rural areas and the infrastructure to enable their operations are there. Because the first questions every CEO will ask are “is there enough demand? Can they afford it? Can I deliver my goods and service in a safe environment?”The sustainable way forward is for government to take proactive steps to make the local market attractive to both local businessmen and foreign companies. Three of the keys things that will yield immediate results and boost the markets appeal are:
1.      Enhance the purchasing power of the local population
2.      Improve infrastructure and communication to reach semi-urban and rural areas
3.      Encourage businesses to look inwards
Enhance the purchasing power of the local population
The American population is now a little over 300 million people but their economy cannot be compared to that of Nigeria. For many companies, the ultimate market to play is the US market. Why? Because of the purchasing power of the local population, an average American can afford almost every non-luxury product.
 It is widely said that over 70% of Nigerian live below the poverty line, that is, live under the $1 dollar per day mark. What can this individual afford? food? Maybe, cars never. What about the Chinese economy, it used to be the destination for production and manufacturing because of its cheap labor even businesses local and o foreign in the country focused all their efforts at export. Today times have changed China is now a destination to beat because of the size of its consumer market. What happened in China was that demand for their works and goods created a country of entrepreneurs, now so many people are wealthy through manufacturing.
The good news for us is, since about 70% of Nigerians live below poverty, if you can enhance their purchasing power, then you’d have over 100 million new consumers with decent disposable income. Well, I know what some people may be thinking, how can you enable poor, uneducated people with a decent purchasing power to that will make a difference? Let us go back to the US economy again, shall we, although the country has a population of 300 million people, less than India and China and other, the market is very attractive, not because they print money and distribute, but because certain programs have been put in place to give people access to money even the ones they have not even earned! What can Nigeria borrow from China and the US, a lot.
Firstly, government should quickly accelerate its program on micro credit scheme and other levels of consumer credit. No excuses should be accepted, the only thing acceptable is a robust and thriving credit industry in the country, no matter what it takes.
Consumer Demand-Pulling
Secondly, state, LGAs, local communities and villages each have responsibilities, they should organize what is called Purchasing Clubs through which they can pull or aggregate enough demand from within to attract the attention of companies in major cities and around the world. Take for instance in my village in Abia State, a bottle of 35cl Coke sells for 80 naira and its even in short supply. Mobile phones are so expensive, what communities like this can do is to organize and pull their purchasing requirements in one place and put them on the table then make arrangements to have them supplied by manufacturers and a great amount should be on credit. In this era of the internet, the supply company can connect to as many communities as possible over the internet with an administrator on the other side in the community until they are able to justify opening offices in those places. This way, it would be feasible for a Cinema company to organize shows for local communities.
Provide Education and Entrepreneurship Initiatives
The third solution, which is a sustainable long-term strategy, involves the provision mass education and entrepreneurship programs across the country. Local people should be incentivized to go into small scale businesses and government should provide initiatives to help them sustain, grow the businesses, and their products should be marketed across the wide-corners of this country where there is demand for them. Vocational and formal Education for adults from the ages of 21-40 should be initiated through e-learning. This way, they can even be able to understand and appreciate the products and services being offered and so they can acquire skills to gain jobs within their localities without firms that will come in having to bring staff from outside.

Improve infrastructure and communication to reach semi-urban and rural areas
Improve Transportation
A lot has been said about the need for better infrastructure in the country now especially in semi-urban and rural areas. Key infrastructures in need of serious solution are roads and electricity. I will not dwell so much on what is wrong or even what needs to be done rather I will talk about what is possible when these are done. Imagine the relief transporters would have if the Benin-ore, Ibadan, Onitsha-Owerri road amongst other are done and well maintained? Goods would move freely to these areas and transporter would be forced by lower costs and low risks to reduce their prices. Still on transportation, an efficient rail system would give the economy the greatest boost in this area. It would mean even cheaper way of moving goods across from far ends of this country. Businesses would not only find it attractive to distribute their goods in these remote areas but will also turn decent profits, government would earn more taxes from VAT to corporate taxes and even more infrastructures will receive funding to be put in place.
Improve Electricity
Electricity is another big area and a lot has been said already. But for the rural areas, it will give them access to one important thing: the television, a medium of communication with the cities. This would give rise to the emergence of a truly country-wide syndicated television network that through it, companies and brands can have a very important singular platform of communicating, at the same time and cost effectively, with consumers from all locations.
What market-ready strategies can companies deploy to harness these markets?
What businesses need to do to capture these acres of aspirators in semi-urban and rural markets is to develop a bottom-of-the-pyramid strategy and treat it an important business segment.
Design a new business model for this operation
Companies should not expect old and tested marketing approaches to work here, so therefore there is need for a business model re-engineering.for example, the notion that rural dwellers and people in semi urban areas need to be chased with cheap products is a recipe for failure. The fact is, consumers in both major cities and any other part of the country, rich or poor appreciate and value good things including luxuries. Research show that human beings are aspiration-driven; they are always with the need to trade up. A markets goldmine is to give them that reason. A very senior friend of mine once told me a story that while he was busy “begging” his members to give a few thousand naira  for church projects and they kept saying they didn’t have but once an opportunity to travel abroad came, even the least of them was able to afford half a million naira bill!
Understand the psychology that works here
As a starting point, companies should invest into understanding the psychology of rural and semi urban dwellers through research. Your strategy or opinion shouldn’t be based on gut-feel but should be based on empirical evidence. This would help in the next steps.
Make your products and services available
For God’s sake, you should make your products available at the same price or better yet at a reduced price to what is obtained in major cities to people elsewhere. And I understand there are certain constraints, but as simple as this sound, it will single-handedly open up about 40% of the target market. I can tell you that there are places that people would kill to buy a bottle of coke but it is not available. What can you do? My suggestion is to open local presence in the target city. It could be directly or through a correspondence, franchise, dealership, which ever model, there should be full visibility and distribution capacity. Innovation is key here; companies can utilize a slow but very cheap mode of transportation but should ensure that a buffer period is given so the goods can get to their destination on time.
Even banks need to wake up to this call. Rural banking is nowhere to be found in this country while it is thriving in India. Strategies such as correspondence banking are being used in some parts of the world to reach unreachable areas with success. Banks can create a different model of correspondence banking relationships with non-financial outlets. Companies in other sectors can create their own distribution network based on the model of correspondence banking. This occurs when a bank that has limited access to certain financial markets and therefore must use the services of another bank to conduct certain transactions. Correspondent banks are usually small. Agreements with other banks allow it to provide necessary services for account holders without incurring the expense of setting up a branch in another city or country.
Offer Innovative Products and with competitive features
Design tailor-made products and services offerings bearing in mind the outcome of your research the peculiar needs and economics of these markets. Emphasize should now be paid to not necessarily the prices of the products but the options of purchase and payment arrangements.
Options such as different sizes or pay-per-use or less value-added premium addition should be designed with the products and services.

Innovative Value-Chain Marketing
To maximize profit margin, business should innovate and exploit less expensive channels of publicity and marketing. For example research shows that friends play a major role in influencing the decisions regarding the products and services BOP consumers choose. If the goods and services provided are of good quality and satisfactory, then they will promote themselves through the word-of-mouth.
Co-marketing efforts with products in your value-chain can prove to be a winner here. Analyze your products and list our on one hand the products your customer would need before they buy your products or services and on the other hand, the products that your customers would need after they buy your products. You have now identified your value-chain. Discuss with non-competing companies in this value chain and negotiate an alliance to both co-market and co-distribute or utilize their existing platform if such exists.
Bottom line is there are tremendous growth opportunities for local and foreign business in Nigeria with over 100 million consumers waiting to be harnessed by discerning few at half the cost of going overseas to chase consumers. There is more to gain, as C.K. Prahalad describes that a "bottom-of-the-pyramid" thinking can lead to the creation of "an impossibly low-cost, high-quality new business model." And the competition will be worse for it.
About the author: This article was written by Victor E. Kalu. He is currently the Chief Executive Officer of Ignovation International, a leading Innovation Consultancy focused on the African Continent. You can reach him on or 07061241887.

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