Regional Growth and Expansion Fuelled by Government Subsidies

In May this year, a perhaps 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 its new office in Casablanca, Morocco. This followed the news of an announcement 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 very recently, the African region has primarily been seen as a region where older solutions and limited capacity for investment go hand in hand.

However, certain areas in Africa are now thriving and growing fast, combining regional growth and expansion on the back of large scale infrastructure investments that have been 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. I have several customers who have opened offices in Morocco, all of whom are excited about the top quality people they can hire with academic degrees, including Information Sciences, at a cost significantly lower than in Western European countries. Morocco has been able to develop this during last decade based 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 only choice to develop significant operations, supported by these connections.

SAP has clearly understood this by not just looking to the region as a low cost centre but, more importantly, as a new, revenue generating region to facilitate its growth. All the leading Banks, Insurance companies and Telco’s, plus several large multinationals such as P&G, Nestlé, Unilever and industry giants as 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

I typically meet with a raised eyebrow when I’m face to face with people and they are questioning why on earth they should consider Africa as 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 begin operations successfully, foreign companies must work with local partners or acquire a local company, which will add invaluable local knowledge, resources and secure a strong network for your business. In addition, it is essential to invest in developing local employees to align them with corporate strategy and plans. It is likely this may not be an overnight success and therefore, every company considering moving into this region should start with a long-term strategy.

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 Ernst &Young 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 constant 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, will help 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 accompanies 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 opportunity identification. The relationship between local partners and foreign investors should be beneficial to both parties. Local partners provide invaluable knowledge of the market and business environment, while foreign investors bring much-needed capital assistance, corporate experience and job creation, all of which can add to the longevity of 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. Rather, the business environment, political stability, transparency and the ongoing fight against corruption, pose greater obstacles for organizations to overcome. An understanding of local culture and the operating environment smooths ensures ease of business. Local partnerships and an open approach to doing business are key to ensuring this is possible. The African elite of the business world in these countries are fluent in at least two working languages (English and French), mostly graduating 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 opportunity 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 and even less about how to conduct business in this region.

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

We work all the time with companies in the software tech sector, where Digital Transformation is preached in practically every conference we attend. I am now working with a number of companies in the software tech sector who have recently begun their entry into the African continent, recognizing it as a region for further growth. This article highlights 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.

I have now been there on a number of occasions and it’s definitely a region worth exploring - not just for their delicious local wines, food and sunshine.

Geert Kruiter
VP Europe
Document Boss