Understanding Africa’s unique market dynamics
In places where people have a lot of resources, like developed countries, they look at markets differently than in places with fewer resources, like developing or underdeveloped countries. In developed countries, they focus on using their money and resources in the best way to grow their economy. However, in developing countries, the way resources are used can be influenced by different factors that aren't always related to the market.
When we talk about markets in Africa, businesses can look at them in a different way than they do in developed or western countries. I noticed that many companies use the same criteria, like GDP, employment and income ratio, to decide on entry or business strategies in the African market. What follows this are investment decisions and the selection of regions based on generic parameters following the same business model observed in other parts of the world. This miss in strategy-making creates a gap that later is difficult to fill.
However, I felt thrilled when I came across a paper by professors Eric Thun and Hiram Samel titled ‘The New Logic of Global Strategy: Firms and Institutions in a Turbulent World’ during my Diploma in Strategy and Innovation during a module on global strategy. This paper introduced two ground-breaking concepts: the concept of firm and the logic of place.
The ‘logic of place’ and its implications
The ‘logic of place’ is about finding a clear ‘growth model’ for a country or region and setting business goals that match this model. The goals can be different, like creating a new business model for the company's products or services, changing the approach to the market based on growth parameters, or even introducing completely new products or services to grab market growth. It's crucial to know that there will be winners and losers in every situation. What's essential for a company is to use its resources most productively, no matter who wins or loses, and to stick to the company's main principles.
It is a logical map of the flow of capital and identification of holders of that capital in addition to those institutions that will define the rules of its use. For example, rather than focusing on whether GDP is growing or de-growing, more important is what is making GDP grow and how it is making it grow. The precentage growth and growth volume alone cannot decide an organisation's strategy to capture value in the value chain.
Once the rules and flow of capital are identified, ‘logic of firm’ identifies factors that enable a business to capture value. At this stage, the company has to align their value capture strategy with Africa. It is quite possible that the business model of the west does not apply to the business model in Africa, which should force businesses to make decisions if they want to adapt or create a business model or even reject the opportunity because it does not make business acumen in the long run.
‘Logic’ in play in Africa
It is evident that by using further drill down of macro factors into what logic drives business in Africa, identifying value capture strategy and aligning business model for that are crucial factors to win in this exciting continent.