Regional Growth and Expansion Fuelled by Government Subsidies

In May last year, a possibly unnoticed announcement was made by SAP: as further evidence of their commitment to driving Digital Transformation on the African continent, SAP announced the opening of a new office in Casablanca, Morocco. This followed news, in December 2015, of the opening of a new SAP office in Luanda, Angola.

With regard to the subject of driving Digital Transformation, the biggest theme most companies in even highly developed countries are still struggling with is one of interest. Until relatively recently, the African region has primarily been viewed as a region where older solutions and limited capacity for investment are the norm.

In contrast to this accepted perspective, certain areas in Africa are now thriving and enjoying rapid growth, expanding on the back of large scale infrastructure investments made over the past decade to facilitate the creation of BPO services.

​Top quality staff at lower cost than western europe

Morocco is one such excellent example. Boss Equity has several clients who have recently opened offices in Morocco. All are excited about the top quality people available to hire, with academic degrees, which include Information Sciences, at a cost significantly lower than in Western European countries. Morocco has developed over the past decade, capitalising on the following features:

1. Geographical and cultural proximity
2. Competitive costs
3. Growing number of well-trained human resources
4. Best infrastructures for Offshoring in Africa (Gartner 2011)
5. Major Government subsidies
6. Stable country - both politically and economically
7. Improving personal data protection system
8. Access to fast growing, local and regional markets; Casablanca, future hub for North-West Africa

More than 50% of all French IT services companies have a presence in Morocco where almost 60,000 people have found employment in this sector. With more than 70,000 kilometers of high speed, submarine cables connecting Morocco to Western Europe, Morocco is probably the smartest choice of location to expand operations.
 

SAP is one large organisation that clearly understands the North African proposition. They don't simply regard the region as a low cost centre, rather, as a new, revenue-generating region to facilitate growth. All the leading Banks, Insurance companies and Telco’s, as well as several large multinationals including P&G, Nestlé, Unilever and industry giants like Maersk, Bayer and Siemens, have all established their North African and Sub-Sahara region sales & marketing in this country. By serving their large Morocco based clients, they can naturally follow these clients in their expansion across Africa.

Industry giants have already established footholds in Africa

In western Europe and the US, it is typical to meet with raised eyebrows when suggesting organisations should consider Africa as a region for further international expansion. Obviously, there are risks involved but that is the case in any new region. According to a study from E&Y, in order to be successful, foreign companies should work with local partners or acquire a local company. This will add invaluable local knowledge and resources as well as securing a strong network for your business. In addition, it is essential to invest in developing local employees to align them with corporate strategy and goals. Any company considering moving into a new region needs to have a long-term strategy in place as it is unlikely to be an overnight success.

Some interesting examples of companies that have been successful in Africa, are:

• Orange, now present in 19 countries across Africa and generating more than $6B in revenue for this region.
• Airtel, mobile services covering all Francophone countries plus South-Africa, generating more than $13B in revenue.
• Dangote Group, large manufacturer, investing alone more than $2,5B in expansion in North Africa.

Political stability: a risk but not a barrier, according to an E&Y study:

Political stability in Francophone/North African countries is often considered one of the larger barriers to entry. The Mo Ibrahim index, a framework that evaluates governance and leadership in African states, ranks FSSA countries at an average of 39 of 51 countries. These countries have seen remarkable improvements in ranking since 2006 and continue to show dynamic and continuing improvements.

Ensuring that these organizations have a clear understanding of the strategic objectives of government, and aligning these with those of the organizations’ commercial interests, helps mitigate political risk. Through managing political risk, organizations will be able to take advantage of the ample opportunities available.

Establishing local partnerships: a mutually beneficial relationship

Doing business in a foreign country is accompanied by a host of risks that can be avoided if the local environment is better understood. Local partners can provide support and guidance in this regard and will be able to assist with strategic execution, risk management, relationship building and identification of new opportunities. The relationship between local partners and foreign investors should be mutually beneficial. Local partners provide invaluable knowledge of the market and business environment, while foreign investors bring much-needed capital investment, corporate experience and job creation, all of which can assist existing local SMEs.

The cultural and language barrier: a surmountable obstacle

Experience shows that language is not a barrier to entry for organizations wanting to do business in Francophone/North Africa. However, the business environment, political stability, transparency and the ongoing battle against corruption, pose greater obstacles for organizations to overcome. An understanding of local culture and the operating environment ensures ease of business. Local partnerships and an open approach to doing business are critical to facilitating this. The African elite of the business world in these countries are fluent in at least two languages (English and French), the majority having graduated from Europe, Canada and America.
 

The time to act is now!

Francophone/North Africa is an emerging and exciting region in which to do business. Investors from around the world are looking to Africa to help grow their organizations and these nations are emerging as top contenders to do business with. The time to enter these markets is now! - Competitive barriers are low and first-mover advantage will ensure brave investors reap high returns. Fifteen years ago, little was understood or known about Francophone Africa, still less about how to conduct business in this region.

Today, organizations are successfully navigating these interesting and diverse countries.

At practically every conference we attend in the Software Tech sector, people are preaching Digital Transformation. We are currently working with a number of companies in this sector who recognise the opportunities for growth in North Africa and have recently begun their entry to the continent. They are taking advantage of the fact that, particularly for European companies contemplating expansion, there are opportunities to consider, which are in their time zone and less than a three-hour flight away.

Boss Equity has visited clients in North Africa on a number of occasions and we believe it is definitely a region worth exploring - and not just for their delicious local wines, food and sunshine :)

Geert Kruiter
SVP, Continental Europe