Reflections from the Harvard Africa Business Conference

Highlights from the conference

“Unite. Innovate. Disrupt. Homegrown Models for Africa’s Prosperity.” Thus was the theme of the 18^th annual Africa Business Conference at Harvard Business School, which I attended last week and left with a renewed enthusiasm for the private sector’s role in generating prosperity. Gathering over 1,500 business professionals from around the world, the conference was an excellent opportunity to discuss gaps, innovations, and growth prospects for the continent.

I was drawn to a workshop led by Research Fellow, Efosa Ojomo, and inspired by Professor Clayton Christensen, about market-creating innovations, which echoed FSG’s view on how to succeed in Sub-Saharan Africa despite cooling growth in major markets.

FSG expects greater currency volatility, pricing pressures, and consumers trading down across Sub-Saharan Africa as countries face low commodity prices, slowing demand from China, and a strong US dollar. Given these trends multinational companies must target the right consumers, act decisively despite logistical impediments, and adapt their strategy to a shifting market.

Multinational companies must be sure they are asking the right questions when confronted with a problem, whether it be dwindling demand or an operational issue. It is impossible to target the right gap and produce the right innovation without asking the right questions – the solution is in the problem.

Types of innovations

The workshop brought to light three types of innovation with varying impacts on wealth creation and are important to consider when multinational companies are planning expansion and localization in Sub-Saharan Africa.

• Market-creating innovations: these innovations target non-consumption, i.e. an unfulfilled customer need, and leverage economies of scale. They make use of capital, create jobs, and provide a product for a group of people who previously could not afford it. Ford’s Model-T automobile, M-Pesa mobile money in Kenya, the smartphone, and online equity trading are all examples of market-creating innovations that hired people, built new value chains, created new servicing industries, and democratized a product.
• Sustaining innovations: these innovations are substitutive and replace old products with new ones, therefore enabling competitiveness and dynamism in a market. For example, the iPhone 6 is a sustaining innovation on the iPhone 5S. However, sustaining innovations don’t make use of much capital nor fuel job creation, and tend to be targeted at already-wealthy consumers.
• Efficiency innovations: the paradigmatic model of our century, these innovations aim to produce more for less. They free up capital by improving cash flow, target existing customers, and eliminate or outsource jobs.

When the three innovations work in tandem, the economy booms. However, when efficiency innovation overtakes the rest – as is the case in Europe and Japan today – the economy stalls. Given cooling growth in Sub-Saharan Africa and the many gaps that permeate its markets, multinational companies should consider market-creating innovations as they devise their expansion strategies for the continent.

Indomie Noodles’ success story in Nigeria

One example of a multinational company that succeeded at market-creating innovation is Tolaram Group, the parent company of Indomie Noodles – the ubiquitous instant noodle brand in Nigeria. Its CEO attended the Africa Business Conference to discuss his company’s expansion in Sub-Saharan Africa. He received widespread applause after his introduction during a keynote address, a testament to Indomie Noodles’ brand power.

Tolaram created the instant noodle market in Nigeria and boasts multi-million dollar sales from an 18-cent product. Yet Tolaram did not find success quickly. It took nearly 10 years for the company to become profitable and 12 years to generate revenues near US$ 10 million. How did the company come to dominate the instant noodle market and become one of the most beloved brands in Nigeria?

The answer: Market-creating innovation.

Tolaram displayed the following attributes when crafting its strategies since it entered Nigeria in 1995:

• Integration: rather than wait for infrastructure to develop, the company carried out a complete value chain integration to minimize risk and disruption. This included backward integration by setting up manufacturing plants for raw materials, as well as forward integration by establishing a retail shop and logistics company that could also service other companies.
• Emergent strategy: after developing a unique framework to assess market size, which includes sending an employee to live in-market and report back on customer trends, the company deployed a strategy that adapted to the market and assumed a long-term view.
• Patient capital: benefiting from private ownership, Tolaram was able to overcome nearly ten years without profits based on a strong belief in product, process, and long-term market potential.

Although not exhaustive, these three attributes are some examples of market-creating innovations. They point to new value networks, new capabilities, and sustained employment; in turn, these factors drive economic growth and entrench the brand in the market.

The case for multinationals

In order to pursue market creation, companies need to display the attributes listed above and be willing to invest in overcoming obstacles to innovation. Weak growth could tempt companies to retrench and solely focus on the easiest opportunities; however, multinational companies should be wary of substantially limiting their SSA business potential by overlooking the role innovation should play in fueling growth.

Given this environment, multinational companies should ask themselves the following questions:

• Are we adept at going after consumption?
• Do we deploy convincing capital, i.e. do we have a short-term mentality in profit-making?
• Are we waiting for infrastructure to be built?
• Are we waiting for corruption to disappear?
• Are we comfortable with shifting the paradigm around growth within our organization?
• Are we okay with starting out with low margins?

If you answer yes to all the questions except the last two and are struggling to capture growth in Sub-Saharan Africa, it might be time to reassess your strategies.

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