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 pws_nigeria@yahoo.com
or 07061241887.
No comments:
Post a Comment