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Know the Market: Doing Business in East Africa

The East African market has attracted high volumes of investment in recent years. Among Kenya and Tanzania’s combined population of approximately 100 million people, over a third are under 40 years of age, meaning that volumes of potential new customers as well as the numbers of qualified workers are high, as education levels and economic prosperity continue to increase. This, combined with political stability in Kenya and a measure of economic integration between the countries – notably through the Common Market for Eastern and Southern Africa (COMESA) – partly explains why investors and multinational firms are looking to establish themselves in the region. Last year, FMCG giant Mars Inc. announced plans to construct a new chewing gum factory in Kenya, while a private equity fund raised over 150 million US Dollars from international and regional investors to invest across the region. Pharmaceutical companies too, continue to have a strong presence.

For international businesses and investors, entering a new territory is not without its challenges. A critical factor which may help them gain traction when they venture into these newer pastures is possessing cultural dexterity – a set of soft skills that combines emotional intelligence and cultural knowledge. Learning the local customs can certainly be important – but to what extent? Is cultural dexterity the key to economic success, or does the secret lie only in economic capability? Below are some considerations, based on the pharmaceutical market.

While the African continent has seen several steps taken toward closer economic integration, there is in fact not one East African market since every country has its own unique set of customer habits and regulatory frameworks, especially when it comes to the field of pharmaceuticals. Tanzania, for example, has a well-developed network of state-funded pharmacies that operate from hospitals and provide affordable general medication. In Kenya, the pharmacy may in many circumstances be a patient’s first point of contact with the medical profession.

With structures and behavioural patterns differing between territories, adapting a product portfolio for a market could make or break a company’s new market entry strategy. One of the first aspects that an actor who wishes to enter a new emerging market should consider is illegitimate trading routes and counterfeits, which may mean that potential consumers already have come across the company’s products. If a counterfeit is a good visual impression of the original product but otherwise disappointing, chances are high that the target group may have formed a negative impression of the brand. With a well-designed advertising and communication strategy, the damage could potentially be undone. Pharmaceutical giant Pfizer made sure to stress that their East African distribution hub would bring legitimate, quality medication to the market when the Nairobi compound opened its doors in 2011, highlighting its strict control of the supply chain.

Ideally, a successful business strategy should also consider the broader impact of infrastructure on the target group. In Kenya in particular, paying attention to the road network and pre-existing provision of petrol stations could bring the firm’s products within reach for those who have the purchasing power but lack the time to visit a shopping mall. This was something that Tony McNally, former CEO of an East African pharmaceutical retail brand knew, and implemented in his strategy after having spent considerable time in Kenya, Rwanda, Tanzania and Uganda. Mr McNally prides himself in having been able to bring high-standard medication in a safe and convenient environment to people, who might otherwise have been unable to access it.

Tony McNally and colleagues opening a new pharmacy in Kenya

If only undertaking desktop research, it is likely that similar opportunities may remain unseen until a competitor spots them. With this in mind, it is of crucial importance to have a trusted connection on the ground, who has a good business network and knows how to navigate the professional culture. Someone who already has a strong foothold in the market will usually know which suppliers offer the best services, which partners ought to be avoided, and be able to help set manageable time frames. Critically, a trusted local partner will also be well versed in avoiding some of the ethical minefields, which the pharmaceutical giants have to navigate in the emerging world.

a picture of Nairobi City

At the end of the day, cultural dexterity and sound business strategies go hand in hand. Solid commercial capability is not sufficient to reap all the opportunities of new markets such as those of East Africa. Grasping the finer nuances of the local business culture is a prerequisite to succeed and neglecting to do so could be fatal. As in most situations in life, the key element is human connections. Working with the right local partners will open the doors to the most valuable component of every successful venture: knowledge, the key ingredient to turn a business plan into a prosperous achievement.

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Beyond Borders Consulting Ltd is a business advisory and executive search firm, specialised in Africa and emerging markets. If you wish to have a confidential discussion with us about business in East Africa, we are happy to speak with you. Enquiries should be sent to our Business Advisory team at contact@bborders.fr.

Written by Hugo Zetterberg

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