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    Thought leadership
    25 May 2022

    Guy Clarke

    Africa Day 2022: Navigating the pitfalls of Africa’s Multinational Enterprise investment

    Vodacom Business Africa has become the trusted ICT partner for MNCs internationalizing into Africa. With that in mind, we have identified a number of key challenges international businesses face when entering the emerging African market.

    The African continent is undoubtedly a key region for future growth for most sectors and industries. However, the continent does come with its own unique set of challenges. This is often the dilemma businesses face when having to make internationalisation decisions to enter Africa and other emerging markets. It’s up to the individual multinational corporations (MNCs) to identify these challenges and know how best to avoid the pitfalls.

    This is where Vodacom Business Africa's value proposition takes centre stage; we support the relevant MNC’s chief technology officer (CTO) by leveraging our information and communication technology (ICT) solutions and investments across our footprint while empowering the MNC’s agenda. Our network infrastructure and connectivity have enabled seamless and secure connectivity for MNCs. We never compromise the quality of our service delivery across our footprint, irrespective of the spread of countries in which these organisations operate.

    Over the past 13 years, Vodacom Business Africa has developed a deep understanding of Africa’s operational nuances. We have carefully developed an extensive network that spans 47 countries on the continent – and in excess of 150 markets around the world, through Vodafone’s global footprint. Our recent network expansion into the Middle East and the United States is enabling us to bring Africa closer to the rest of the world, giving local innovations the platform to scale and have an impact on broader ecosystems.  

    Challenges of the emerging African market

    In the past, MNCs usually opted for a more linear approach to internationalisation. They generally expanded into adjacent markets where their risks were deemed minimal, thanks to geographical distance and similarities in language and culture between the home and host.

    Today, such factors are much less important. Cross-border service is now easy to deliver, creating an exponential approach to internationalisation. However, the broader known risks that MNCs face are the same, presenting as liabilities that the multinationals carry into these new markets:

    • Liabilities of Foreignness and Outsidership: Many MNCs fail to fully appreciate the importance of adapting all aspects of their business, especially with their customer touchpoints to the local languages and cultures. Face to face relationships is valued and patience is needed to cultivate them as MNCs may initially find themselves excluded from the required relationship networks. However, these can be mitigated by complementing their workforce with a best-fit blend of both local and ex-pats, with a sustainable skills transfer plan over time.
    • Cultural and Language barriers: The added expectation of the MNC is to adapt the MNC's Home Country's culture and language to the Host Markets’. MNCs are often visible brands, which sometimes makes them soft targets. These exposures may materialize as Tax collector's targets, easily ramping up punitive costs and rates not normally applicable to local businesses, etc.
    • Liabilities of Newness: MNCs often pay a huge price for being new in markets, which translates to inflated operational costs. E.g. Multiple taxations, inefficient suppliers, exorbitant licencing fees, etc.
    • Ethical business: A zero-tolerance approach to corruption is essential from the start when forging new alliances with stakeholders in the local markets for the MNC. Setting these ground rules early will prove immensely valuable as the MNC gains more traction and exposure in the market. 
    • Intellectual property: MNCs need to protect their intellectual property rights to win the fight against counterfeit products which can cannibalize their brands.
    • Securing a Psychological License to Operate: Over and above obtaining the local market’s operating license, the MNC must constantly seek opportunities to appropriate their core capabilities to address the biggest societal challenges in the markets they operate in. In so doing, they will endear themselves to society and build the necessary brand equity to secure future growth and impact. Thankfully, Social Innovation has created a platform for MNCs to uplift these societies using ICT at its core.
    • Research Data: The availability and reliability of formal research data on key industry verticals often make sizing opportunities more of an art as opposed to a logical science. How does an MNC assess itself against its competitors in the absence of quality benchmarking data? Ensure that you have a detailed understanding of Data Sovereignty laws - What data can be exported versus the ones prohibited. These are industry dependent and vary across countries.
    • Local Content: Some countries mandate the use of local suppliers or even local shareholders. E.g. The Nigeria Local Content bill or South Africa’s BBBEE.
    • Contract Adherence: Getting suppliers to honour their contractual obligations is often a challenge MNCs face when engaging local suppliers.  

    Other blind spots to consider include; ease of doing business, dealing with the impacts of political unrest, and formal and informal barriers erected which frustrate MNCs' foreign market entries.

    Selling, building and operating in Africa

    If a large multinational business wants to invest in Africa today, it needs to know it can replicate its operations in Europe or North America without having to reinvent the wheel. The digitalisation of customer experience is also an important aspect to consider. Technology helps businesses be more flexible in responding to customer demands. 

    Vodacom Business Africa has empowered many pan-African, regional and global enterprises to achieve rapid growth and scale as their operations traverse respective borders. These MNCs operate in verticals ranging from finance, insurance and energy services, to mining and construction and other professional services enterprises.

    We understand that expanding into new and unfamiliar territories is complex enough without worrying about your communications, IT infrastructure and systems. As an MNC operating in foreign markets, you have the additional challenge of preserving your brand reputation while enhancing customer experiences. This means MNCs need to focus more on their core reasons for existing ­– even more so where their products and service offerings aren’t core ICT services. With that in mind, we’ve selected some key issues to consider when starting up your business on the continent. 

    Selling your Services

    • Selling Competitively - Striking the right balance on Trade-offs between speed, cost and quality when pricing to win.
    • Stakeholder relationship networks - The saliency needs and influence of industry bodies, trade councils, workers unions, and pressure groups should not be underestimated by the MNC. 
    • Taxation compliance and efficiencies - A question to ask is if the tax and levies and repatriation of dividends outweigh the benefits of entry to a new investorUnderstanding applicable Local (VAT, Digital Services) versus International taxes (WHT) to comply with, while also knowing which treaties between international and regional economic trading blocs can be leveraged to achieve tax efficiencies. 
    • Central versus Local contracting - The MNC must strike a balance between the simplicity and efficiencies obtained via buying centrally or following a locally distributed procurement approach, or settling for a Hybrid model.
    • Billing framework - understanding what works for the market, paying in arrears versus advance, weekly versus quarterly billing models that best suit the MNC’s buying centres. Is the market more wage driven or salaried?
    • Contract litigation - Which market is ideal to resolve legal disputes when contracts go wrong? Is the MNC's Home Country ideal or is the local market Host Country more beneficial? Time to resolve legal disputes can vary significantly across markets, with some being far more efficient and consistent than others.
    • Creditworthiness - How does the MNC vet the creditworthiness of not only its customers but also even key channels downstream in its ecosystem value chains? Many MNCs have ended up with avoidable contract defaults, resulting in bad debts and loss of value and failed brand promises to their clients.

    Building your Services

    • Service delivery - Delivering on time, within quality specifications and within budget can so easily become the Project team’s worst nightmare if not well controlled. How much risk and accountability does the MNC transfer to its suppliers. How can these be redressed if transgressed? 
    • Labour - Labour laws vary in stages of maturity across countries and access to skilled labour can be a challenge.
    • Quality - The quality of local products can often be inconsistent and sometimes even inferior. At the same time, MNCs need to decide whether sourcing such products internationally from developed markets is a worthwhile option. 
    • Inventory Management - The COVID-19 pandemic already created a strain on global supply chains. The ongoing Russia-Ukraine war has further worsened this. MNCs must ensure the value chains of upstream suppliers are able to either produce or hold stock locally and are less impacted by global supply chain constraints in making their choices. 

    The inefficiencies of poorly selected local customs agencies in clearing and processing goods from international ports can introduce significant delays which result in avoidable demurrage costs, taxes and excise duties.

    Operating your Services

    A myriad of factors can contribute to your customer’s service experiences. Factors which contribute to service outages are inexhaustive and can include, incessant fibre cuts, spectrum interference, telecoms assets vandalization and theft, poor structured infrastructure to support the build of telecoms infrastructure, adverse weather conditions, civil unrest which could prevent you from accessing your infrastructure to mention a few. Having end-to-end visibility of your network underlay and service overlay is crucial. Knowing when to consolidate your supplier is equally as critical as knowing when to diversify, especially where services are aggregated from multiple providers across multiple geographies.  

    Throughout our dealings across the continent, we have found that having a multi-lingual customer service contact centre is a non-negotiable capability that MNCs must demand of their partners as this helps to break down language barriers, speed up problem resolution and gain local customer trust. The MNC should also remember to put in place key performance criteria with transparency and visibility by its suppliers to create healthy competition amongst them. This ultimately improves quality. There can also be a frequent lack of availability of convertible foreign currency to extract cash or settle foreign suppliers, which are further complicated by shifting unpredictable economic conditions.

    Digital value through global partnerships

    ICT is at the heart of the delivery of every enterprise strategy. Getting it right consistently and predictably can make or break your business. This dilemma is further complicated when the MNC tries to standardise across multiple geographies. Identifying and partnering with experienced ICT service provider(s) is key to success in order to navigate these land mines that can so easily blindsight CIOs and CTOs. 

    Vodacom Business Africa has become the trusted ICT partner for MNCs internationalizing into Africa. Let Vodacom Business Africa bring to bear its experience gathered over the past 13 years of operating in Africa to give your business that sustainable edge and competitive advantage you need to win consistently in Africa. Find out more.

     - GUY CLARKE, MANAGING DIRECTOR - VODACOM BUSINESS INTERNATIONAL

    Guy Clarke