Across industries, Emerging Markets (EM)-based companies are entering Sub-Saharan Africa (SSA) at a faster rate than Western companies, gaining critical market share and customer loyalty. Underestimating the threat EM-based companies pose, Western MNCs are not yet concerned at their own peril! The number of FDI projects undertaken by EM-based companies increased at a compound annual growth rate (CAGR) of 20.7% between 2007 and 2012, compared to 8.4% growth from developed countries’ companies during the same period. Companies headquartered in emerging markets grow 2.5 times faster than those based in developed markets when competing in emerging markets where neither of the companies is headquartered. EM-based companies are more flexible in allocating capital to new business opportunities and have growth-oriented, long-term business models. EM-based companies are also less risk averse.
EM-based companies target a more diverse group of countries and sectors: The main beneficiaries of global FDI are South Africa, Nigeria, Angola, Kenya, Ghana, Tanzania, Mozambique, Zambia, and Mauritius, but data shows that investment is beginning to flow to a more diverse group of countries including Côte d’Ivoire and Cameroon. Contrary to the popular belief that the bulk of BRICS’ (Brazil, Russia, India, China, and South Africa) investment in Africa goes into the natural resource sector, manufacturing and services accounted for 74.0% of the dollar value of FDI projects and 90.0% of total FDI projects in Africa between 2003 and 2012.
EM-based companies pose competitive threats to MNCs: MNCs face competitive threats from EM-based competitors that are expanding their footprint by entering into powerful JVs, setting up local manufacturing, tailoring products to local markets, and partnering with EM governments to win government tenders.
MNCs should implement defensive strategies to compete with EM-based companies: Strategies should be preventive and tailored to specific threats from EM-based competitors. For example competing on service rather than price, adapting the product portfolio to local preferences, or aligning commercial strategies to government objectives, such as job creation, to win contracts. FSG’s new report ‘Dealing with Emerging-Market Competitors in Sub-Saharan Africa’ highlights investment trends by EM-based competitors and strategies companies should implement to compete with them.
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