Clever Consultants Misunderstanding Africa…Again

Five years ago the Boston Consulting Group (they prefer to call themselves simply BCG) came out with a report on what it called the “African Lions”: eight African countries with per capita incomes higher than those of the BRICS countries – Brazil, Russia, India, China, and South Africa – which it claimed were harbingers of a new era of business opportunities in Africa. I wrote about this here at the time, marveling at how dense elite management consultants could be. Now they are at it again.

In a report released last month entitled “Dueling with Lions: Playing the New Game of Business Success in Africa,” BCG shifts its focus from the countries it calls lions to African companies, which it also confusingly calls lions, trying to winkle out the secrets of their success and extract lessons for international companies trying to compete in Africa.

Use of the term lions to refer to successful African countries or companies could be considered slightly derogatory, but I’ll give BCG a pass on this, since the Asian “tigers” long ago became common terminology and no one seemed to complain. I won’t give BCG a pass, though, on its condescending way of looking at Africa through a lens of exoticism and banality, using consulting jargon to create mystery where there is none, and to state the obvious as if it were an important revelation.

BCG’s thesis is that home-grown African companies have important advantages, and that multinational corporations (MNCs) that want to compete in African markets need to “adopt a long-term view, rethink traditional models, and build strong local teams,” while using their “advanced technology, famous brands, and strong process and organizational skills to build an advantage in Africa.”

But if that weren’t enough, the report goes on to say “In deconstructing the African Lions’ edge, four factors stand out: their commitment to local markets (Africa is the Lions’ top priority and often the only place they operate), their extensive on-the-ground experience and proximity to decision-makers, their superior grasp or information relevant to local markets, and their comfort with informal business environments. Put another way, successful African companies have the advantages of focus, field, facts, and flexibility. These are the four Fs of the African Lions.” There is probably no need to point out that this statement is followed by a slick graphic to illustrate and expand on the four Fs.

What all this means is quite simple: African companies, operating on their home turf, have better knowledge of local markets and ways of doing business, and better connections and relationships with governments, partners, suppliers, and customers, and they devote more of their resources to their home markets than outside competitors  typically do.

There is nothing uniquely African about this. Unless they become complacent, which often happens when governments try to hamstring foreign competitors with trade and regulatory barriers, domestic companies will always have an advantage over foreign companies in their home markets. If you doubt this, consider General Motors, which went from selling more than half of all the cars bought in the U.S. during the 1950s to a 17.9 percent market share in 2012. Japanese, Korean, and European car makers made up the difference, mainly by adopting a long-term view, rethinking traditional models, and building strong local teams, while using their advanced technology, famous brands, and strong process and organizational skills to build an advantage – exactly what BCG advises multinationals to do in Africa.

As it happens, many multinationals have already succeeded in African consumer markets (the BCG report focuses mainly on companies selling goods and services directly to consumers) by operating along the same lines. Heineken began selling beer in Africa in 1900, opened its first brewery on the continent in 1923, and today brews beer in 24 African countries. Coca Cola began selling its product in Africa in 1929 and today has operations in every country on the continent. KFC entered the South African market in 1971 and today has restaurants in 16 African countries, including more than 800 in South Africa.

These companies, and others like them, have succeeded by becoming embedded in the countries in which they operate: in short, by becoming African. KFC, facing inadequate supplies of chicken, lettuce, and other essential ingredients, has begun to work with local farmers in many countries to develop more reliable supply chains. In a country like Nigeria, where KFC plans to have 100 restaurants by 2020, there is no alternative. A 2005 study of Coca Cola’s impact on the South African economy estimated that the company and its supply and distribution chains accounted for 1.4 percent of national GDP and direct and indirect employment of 1.4 percent of total formal and informal sector employment. The study observes that, “the Coca-Cola system in South Africa is…the core of a competitive cluster. This core encompasses the country office of The Coca-Cola Company and local bottlers and canners who make products under the Coca-Cola trademark. Moreover, a larger network of businesses is tied to this core system, including suppliers, distributors, wholesalers, and retailers spanning every region of South Africa. The Coca-Cola system employment network thus extends from plant managers to street hawkers.”

Not all multinationals get it right, but this applies everywhere, not just in Africa. Walmart has famously floundered in Japan, and abandoned the German and South Korean markets after a decade of struggling, mainly because it failed to adapt to local cultural practices, distribution channels, and consumer preferences.

In contrast to KFC, when a group of Detroit businessmen in the mid-1990s got a Domino’s Pizza master franchise for South Africa their venture failed after just four years, having opened only six stores. One of the founding partners, in a 2000 newspaper interview, said that more time could have been spent doing research to get a better understanding of the South African people, its culture, and business practices. “But we jumped in,” he said. “Every possible pile of elephant dung we could step in, we did.”

The main flaw, then, in BCG’s report is not that it gets things spectacularly wrong. It is that most of its insights have nothing specifically to do with Africa. They could apply equally to almost every effort to enter a foreign market. Two big errors, however, deserve comment.

Africa is a continent, not a country: As it did in its 2010 report on African Lions (the countries), BCG’s Dueling Lions report treats Africa as one undifferentiated place: a single market, even going so far as to lump Egypt and Morocco, both North African countries that are closer in culture, language and history to the Arab world than to the rest of Africa. And while Africa may someday become a single market along the lines of the European Union, that day is still pretty far off. African companies trying to expand across borders within Africa face many of the same challenges European, Asian, or North American firms do, though they may have greater patience and adaptability.

I have written about the South African supermarket chain Shoprite, which since the end of apartheid has successfully  expanded into 14 other African countries. Its visionary Chairman, Christo Wiese, recognized that to succeed he would have to develop local supply chains, starting with meat and produce growers and distributors. In Shoprite’s expansion it has come across some formidable local competitors like the Nairobi-based Nakumatt supermarket chain, which is the market leader in Kenya, Tanzania, Uganda, and Rwanda.  Nakumatt has recently acquired Shoprite stores in Uganda and Tanzania as part of Shoprite’s exit from the East African market in the face of competition from Nakumatt and other regional grocery chains like Uchumi. So even the most successful “African Lions” can be bested when they venture out of their own lair into someone else’s territory.

African banks do not give away money: According to BCG, “African banks provide another example of flexibility. Whereas U.S. and European banks would never offer an account or a loan to someone who couldn’t put up conventional collateral, African banks often require nothing more than a national identity card and may accept personal belongings as collateral.” BCG appears to be confusing or conflating several distinct phenomena.

First, it is news to me that you need to put up collateral to open a bank account in the U.S. or Europe. Banks in many African countries do offer hire-purchase credit through retailers of furniture and other high-ticket items – Nakumatt, in partnership with Bank of Africa, has begun offering hire purchase credit on furniture and appliances costing between $500 and $5,000 – and maybe the new living room set or washing machine is what BCG means by “personal belongings” that serve as collateral. But when it comes to providing business loans, banks in most African countries often won’t provide anything but short-term trade financing, and on those occasions when they do provide longer-term loans they typically require collateral worth at least twice the loan’s principal value.

BCG currently has three offices in Africa, where almost all of its clients are non-African multinationals: one in Casablanca, where the Senor Partner, Patrick Dupoux, is one of the report’s main authors; one in the Angolan capital of Luanda; and one in Johannesburg.

The Dueling Lions report states that, “when you hear about a deal in Africa that succeeded because of a flexible approach, it usually involves an African Lion. And when you hear of one that failed because of excessive rigidity, it’s usually a Western MNC that payed [sic] the price.” The main lesson I take away from BCG’s latest African adventure is that the firm may find it as hard to succeed in Africa as those Western MNCs whose rigidity it deplores.