Approximately 40 per cent of global small and medium sized enterprises (SMEs) do not perceive Africa as a growth opportunity despite the continent’s economic growth and growing middle class.
This is according to a study by the Economist Intelligence Unit (EIU) on behalf of DHL Express, which also reveals that while many multinational and state-owned companies are looking to take advantage of opportunities in Africa, SMEs remain apprehensive and are targeting other emerging markets.
The study, which surveyed 480 SME executives and experts from business lobbying groups, found SMEs are deterred by Africa’s low average consumer spend, cultural and infrastructure challenges, and inefficiencies such as corruption and political risk in the region.
Charles Brewer, managing director of DHL Express Sub-Saharan Africa, said despite current challenges in attracting global SME interest, the study’s findings still highlight the untapped potential that still exists in Africa.
“The fact that SMEs expect to generate up to 50 per cent of revenues internationally by 2019 is a massive positive and highlights the vast opportunities for Africa from an investment and job creation perspective,” he said.
Brewer said overcoming different market environments was the biggest hurdle, with the quality of a target market´s infrastructure, the stability of its politics, administrative costs when establishing a local presence and cultural differences in doing business all cited those surveyed as factors deterring them from entering African markets.
“The unfamiliarity of foreign markets received particular attention, with 84 per cent of respondents describing understanding a target market’s culture or language as important or very important in determining its attractiveness. This also explains why most SMEs often expand into markets that resemble their own,” he said.
“This is evident in Africa, as companies looking to expand into the continent, often make use of a ‘one size fits all’ approach. Due to the various cultures, languages and customs on the continent, vast amounts of research need to be done into each region, and the services and products need to be specifically tailored to each country. Africa is not one country.”
The survey also found partnerships were an important consideration for SMEs when it comes to expansion, identifying a number of innovative approaches in this area such as piggybacking on another company’s existing retail network to enter the sub-Saharan market in Africa.