Expanding into Africa

BRAND RECOGNITION: LIKE A NEW BUSINESS

Expanding your business into Africa is most definitely the right direction to go if your ambition is to build an international business. It is a bold and exciting prospect which many an entrepreneur has pursued but failed due to not counting the cost.

Expanding a business requires a massive investment and even more so expanding into Africa: opening a branch in Africa is like starting a totally new business. Why? Because the locals in that region do not recognise who you are.

It is different from opening a branch in Auckland Park while operating in Northcliff, because your Northcliff customers could recognise your new store and support you.

But in Africa that’s not the case because to the locals you are a brand new business and to convince them to buy your product might require a significant marketing budget.

This is one of the areas businesses entering foreign lands fail to anticipate, in that more money will be required to market and convince customers to buy.

Entrepreneurs enter a foreign market with the confidence of their previous success to their detriment, which causes them to rest on their laurels and not put in an adequate marketing effort.

Then there is the information-gathering cost, which constitutes you going to the country to conduct first-hand research on the ground. And let’s not forget the cost of setting up: from finding a location, renovating, and purchasing office and production equipment. Even after setting up, you will still require a cushion of funds for the next six or so months to sustain the business, because of the possibility of not making a profit.

Clearly a massive financial undertaking is necessary to expand into Africa and, as an entrepreneur, you might not want to risk using your profits for such a venture. In that case you could use external money.

There are South African investors, such as private equity firms and investment banks, that are willing to invest in ambitious entrepreneurs who have businesses that can penetrate the African market.

And if investors do not tickle your fancy, you could borrow money from the bank.

We are fortunate in South Africa to have banks that have a presence in Africa and often the local branch will facilitate a loan for the country you are venturing into.

Last, but not least, if you think there is too much risk in starting a business in Africa, you can always expand through buying a competitor in your chosen country.