In 2013 DHL published a study that showed internationally-focused small and medium-sized enterprises (SMEs) are twice as likely to be successful compared to those only operating domestically. But while expanding across borders is an exciting opportunity, it can be daunting and a high-risk investment.
DHL and South Africa’s National Small Business Chamber recently hosted a panel discussion at the My Business Expo in Cape Town, where a group of experts gave advice to SMEs looking to grow their businesses into other African markets.
The first step in building an African footprint is deciding which countries to enter. “Africa is not a homogeneous market… Every country is different, and have different legal systems and market environments. So deciding which country to target is very much a function of your business and what you want to achieve, and how you can match your plan with the market environment in a particular country,” said John Barton-Bridges, CEO of Griffin Advisors.
According to Ashlin Perumall, a senior associate at law firm Adams & Adams, SMEs should pay careful attention to the regulations and tax systems in the territories where they want to do business.
For example, some jurisdictions have minimum capital requirements, which means companies need to invest a certain amount of money in order to register themselves. Oftentimes countries also require that foreign companies have local shareholders and directors. Investment in some sectors might even require ministerial approval.
In addition, SMEs need to ensure that their intellectual property will be protected, especially considering that counterfeit products remains a significant challenge in many parts of the continent.
It is in navigating these laws and regulations where SMEs are often at a disadvantage to better-resourced large companies. However, to address some of these challenges, small businesses should consider operating within established trade blocs – such as SADC (Southern African Development Community), the EAC (East African Community) and ECOWAS (Economic Community of West African States) – which have more harmonised trade and investment arrangements between member states.
Robert Marshall, customer service manager at DHL Express South Africa, said SMEs also need to familiarise themselves with import/export duties and customs regimes in the countries they are targeting. “Your first port of call should be the customs authority,” he noted, adding many underestimate the extent to which duties can increase the cost of importing items into a foreign country.
According to the most recent DHL Global Connectedness Index, Africa is the world’s least-connected continent when considering the ease of moving people, trade, information and finance. Marshall said that as SMEs develop their cross-border strategies, they need to be cognisant of the fact that many African countries still have under-developed transport and logistics infrastructure, which will have an impact on how companies manage their stock.
Local partners and networks essential
All the panelists highlighted the importance of having knowledgeable and connected domestic business partners in a foreign country.
“One of the big challenges of moving into new markets is establishing a presence in that market… The absolutely key thing is to find a good local partner. And you need to put a lot of time and effort into that to make sure it is the right partner,” said Barton-Bridges.
“[You need someone] who can give you access to the right people, who you can deal with both from a reputational and commercial perspective… Doing business on the continent is all about relationships,” he added.
To build networks in foreign territories, business owners should meet and talk to as many people as possible. Marshall said entrepreneurs should never let an opportunity to build their networks go to waste. “For example, if you are on a plane to Europe, you’ve got 14 hours with a captive audience. You never know who you are sitting next to. Capitalise on every single one of those opportunities.”