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When the world\u2019s largest manufacturer of household items decided to enter the East African market last year the move may have signaled that the region\u2019s growing middle class is now being taken seriously by international markets. While the fledgling industry faces competition from bootleg products, discerning clients in the region are demanding the best and they are willing to foot the higher bill that goes along with a quality product.<\/p>\n
The company is just one of many now flocking to Africa to take advantage of its growth and potential. According to the Economist, citing figures from Standard Bank, Africa now has a fast-growing middle class – around 60 million people now have incomes of $3,000 which is expected to reach 100 million by 2015. Add to this the growing rate of investments which has increased tenfold in the past decade and the claims of Africa being the current \u201cnext frontier\u201d for business opportunities seem to be confirmed.<\/p>\n
While companies may be tempted to take advantage of the opportunities that exist in many African countries, specific risks may hold them back from taking the final step.<\/p>\n
One of the challenges this company faced was finding a suitable local distributor with experience and a built-in network of end-users. With a regional hub located in Kenya, the company was able to locate a well-known distributor with expertise in household products and a network that included distribution to major supermarkets. The next hurdle to finalizing the partnership is one that is quite common in these circumstances.<\/p>\n
\u201cIn many cases, when a company from Europe or North America sets up shop in the region, their strategy is to partner with a local company in order to gain a stronger foothold in the market. Differences in business culture and expectations can derail the process unless both parties are able to find common ground,\u201d notes ATI\u2019s Underwriter, Rennie Kariuki.<\/p>\n
Some of the obstacles that can derail the process include a lack of capacity on the part of local companies to meet the demand of buyers that are used to supplying mass quantities of high quality products. To meet this demand often requires capital intensive investments in equipment, transportation, warehousing and staffing. This can be the make or break point for some local companies who want to expand and take advantage of incoming opportunities but lack access to credit facilities and financing.<\/p>\n
For the Kenyan distributor the offer by the multinational company to assume the right to be their sole distributor was one they simply could not refuse. How they were going to comply to the company\u2019s request for a guarantee with the additional expenses they would naturally incur under the terms of the contract would prove to be the \u2018elephant in the room\u2019 question.<\/p>\n