Are you considering opening a business in South Africa? South Africa has long been viewed as the gateway to doing business in Africa. Although Nigeria has now officially overtaken South Africa as the continent’s largest economy, South Africa remains to be one of Africa’s top markets and investment destinations.
One of the biggest challenges you should be aware of when setting up a business in South Africa with limited resources is that you will face higher competition there than elsewhere in Africa. This means that it may become much harder to grow your business fast and gain the significance you would be able to more easily reach in other African markets where the demand-supply chain gap is much larger and competition is relatively low. In other words: In South Africa there is is generally a greater chance that you will remain a small fish in a large pond.
But there are certain trends and developments in the South African market that you could use to your advantage to grow your business faster. Here are a few tips how to make smart and strategic choices that can help you to successfully position your business in South Africa more confidently.
1) Think Pan-African when you work on your business model
Here are a couple of important facts: South Africa is not only a well respected gateway to Africa, but it is also one of the top investing countries into the rest of the continent. Intra-African FDI has increased at a compound rate of around 42% in the last five years, and in 2012 South Africa started more economic projects on the continent than any other country in the world!
Most of Africa’s renowned equity firms are based in South Africa and while the East African region is currently their preferred investment destination due to the huge regional market potential that is being built there by taking down the trade barriers among member states, South Africa remains the base for many to do business on continent.
South Africa has also become the favorite business and holiday destination for other Africans. Earlier this year Travelstart.com.ng announced that London followed by Johannesburg was the top travel destination of Nigerians during 2013 measured by the total number of flights booked.
These are just a couple of examples, but with the enormous growth dynamics that will now continue across Africa, it is expected that similar links and trends will continue to increase.
If you are aware of them you can build a business model that uses these developments strategically offering service or products from South Africa towards the rest of the continent or vice versa: serving those coming in.
In doing so, you can easily find a unique niche.By looking outwards and actively using the vivid dynamics happening elsewhere in Africa, and by enabling and strengthening these linkages, it should not take you long to position yourself successfully!
2) Choose distinct growth sectors to build your business
I think it is of importance to look at current growth sectors and tapping into them if you want to increase your success rate. Know them, study them, and select the one that is of interest to you to start or grow you business.
The following sectors are South Africa’s key sectors, which are expected to grow further. They are: ICT, creative industries, clothing & textiles, tourism, mining/metals, renewable energy industries, agro-processing, automotives and components; transport & logistics, plastics, pharmaceuticals and chemicals, property and real estate, business services, events management. These are dynamic sector and some of them see increased attention by government, which means there is a concrete agenda to develop them further.
Now, let me go a step further: if you are able to link these top sectors with the fast growing Pan-African trend, you will have a strong concept in hand:
Serving businesses, processing agricultural produce, enabling intra-African tourism, creating unique ICT solutions or events management strengthening those links – just to name a few.
3) Leading ahead in the transformation of South Africa’s townships
According to Maria Petousis, Director of TGI, a research company for consumer trends, the consumers of South Africa’s townships – contrary to many misconceptions – consumers in townships are actually very receptive towards new products and brand aware.
In an interview last month (April 2014) she noted: “Townships are growing at a massive rate and are becoming more diverse in terms of culture, income levels, lifestyles and attitudes. These differences are evident from township to township, neighbourhood to neighbourhood and individual to individual. Historically people in townships have tended to be treated as a homogeneous group and research shows that they have expressed a desire to be treated as individuals. Brands and retailers often apply generic formal retail strategies or global marketing strategies which fail to understand this expanding and essentially unique emerging market. This results in very few brands demonstrating the ability to penetrate the township market successfully. All townships are unique and there is no one-fits-all approach. Marketers need to realise the limitations of demographic segmentation and focus on mind-sets and lifestyles to foster a genuine understanding and engagement with these markets,” explains Petousis
And reports about the slow economic transformation in townships are on the increase: once-impoverished townships suddenly become trendy night spots, property developers are moving in, and many more are opening shops and businesses seeing potential in these long neglected markets.
And you usually do not need expensive market strategies: word to mouth is still the most powerful strategy at the moment
In one of my earlier blog post I featured of a pharmacist who set up his pharmacy in a South African township increasing his profit manifold, because the next pharmacy was an entire 5 miles away, but also because people are now to him looking for medical advice and treatment which they cannot easily access in overcrowded poorly managed state hospitals. The owner said, his business was extremely profitable.
Below is a short video clip of a coffee shop that was set up in a township, the first of its kind in the area – just to give you a quick idea of this emerging market.
Did you notice something?
yep….
Firstly, their income apparently increased 10 times in their first year of trading….and….their coffee beans come from as far as….. South America…..
This is exactly what I am talking about…..many gaps are still to be filled!
Wishing you all the best with you South Africa venture!
So, is South Africa still a good place to start a business these days as compared to the rest of the continent? What are your thoughts?
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Thank you for sharing. In the US for the longest time Companies did the same with black and hispanic customers, It was a white message with a black of hispanic face.
Tere are so many opportunities in the traditionally underserved markets. Villages, communities that are off the beaten path need service and they have funds to pay for the services and goods.
Thank you.