International Marketing Expert Bullish On Africa

Written by Jeffrey Cavanaugh

The 2008 global financial crisis may have hit the developed economies hard, but Africa weathered the downturn well and is growing strong, according to one global marketing expert.

Africa suffered from the downturn, too, but the continent’s high growth rates buffered African consumers from the worst of the downturn, says Prof. Vijay Mahajan, an international marketing expert bullish on Africa.

Mahajan holds the John P. Harbin Centennial Chair in Business at the McCombs School of Business, University of Texas at Austin.

Africa’s middle class was hurt just like America’s, but not enough to slow Africa’s stellar growth rates.

But unlike in America where the middle class has stagnated, the middle class in Africa is growing in many countries. During the recession,” Mahajan said, “I went to South Africa and they were doing quite OK. Nigeria, Rwanda, Ethiopia – the story is the same. The (middle class is) actually doing quite well.”

In 2008, just as the U.S.-led housing bust sent the global economy into a tailspin, Mahajan published “Africa Rising: How 900 Million African Consumers Offer More Than You Think.” It’s an analytical work on emerging consumer markets in Africa that described the vast, untapped consumer demand growing across the continent.

The book has since helped some American companies looking to cash in on Africa’s growth story, including KFC. Kentucky Fried Chicken’s parent, Yum Brands Inc. said in 2010 it intended to open 1,200 stores across the continent by 2014.

Mahajan, an expert on consumer markets in developing economies, says he was moved to write the book after noticing the similarity many African economies had with China’s and India’s economies. While Western investors have long been attracted to China and, more recently, India, Africa was still very much a blank space on the map for many U.S. investors, he said.

Growth in all three regions is being driven by similar factors, he said. Among the most potent is urbanization, which has long been correlated with economic growth and the emergence of middle-class consumers. While China and India are relatively far along in the process of urbanization, Africa has much further to go – which suggests that the African growth story, like that of China and India, could be a decades-long process that is only now really beginning.

As evidence for this, says Mahajan, one has to only go into Africa’s teeming cities. “One example that really stands out is my most recent visit to Lagos,” he said. “In one slum one could see ladies hawking everything, and people were very keen to show me whether they were using products like toothpaste or not. Even,” said Mahajan, mainstream “Unilever products like Axe body spray.”

This showed him how deep consumer aspiration is in these countries, Mahajan said – something that can be easily missed by Western companies not comfortable operating in developing countries. “If we stay in our comfort zone,” said Mahajan, “we’ll never go anywhere. You have to change your mindset.”

In Africa, like in the rest of the developing world, “things are different. We have to get out of our 2,400-square-foot mentality,” Mahajan said, referring to how huge American homes are in comparison with most found in Africa. “You can’t take a 2,400-square-foot mentality to Africa,” where most homes are 500- to -900-square feet, “and expect to succeed,” he said. “Americans have to get out of their comfort zone and know the rules of engagement.”

“How many companies really go to Africa to see, despite their poverty, that (Africans’)  aspirations are the same?” Mahajan said. “I was truly overwhelmed. Unless you do the market research, you don’t realize how big the market is in these countries.”

If you go to Africa, said Mahajan, you learn that, “at end of the day a mother’s emotions don’t change. Ethiopian, Chinese, Texan, Christian, Muslim, I don’t know any mother that doesn’t want the best for her child.” These aspirations can bring huge rewards for globally-known brands like Proctor and Gamble if they do the hard work of understanding who their potential customers in Africa are and what they desire.

But, equally important is the need to understand their economic context. Chinese and Indian businesses that have set up operations across Africa have been some of the best teachers for Western companies hoping to service the African market.

“The Chinese and Indians are pioneers,” said Mahajan, “we can learn from them. They showed us that there is a market for our products.”

From his perspective,” Mahajan said, there is no “scramble” for Africa despite the play it gets in the mainstream press. “If we look at consumers and all we are thinking is this scramble-for-Africa-thinking, we won’t succeed,” he said. “Competition is good.”

So where is competition fiercest in the emerging consumer markets in Africa? There are huge opportunities in consumer finance, mobile telephones and associated information services, hospitality and tourism, healthcare and education, Mahajan said.

There is a huge, pent-up demand for these services that is not being adequately met by either local governments or humanitarian aid agencies. The implication is that if a business model can be found that can provide services profitably in these areas, consumers will flock to those providers.

The trick, said Mahajan, is to understand that while operating in Africa’s urban areas is important, the next big step is to develop distribution and marketing channels for Africa’s still huge rural population. On a trip to Addis Abba, Ethiopia, Mahajan said he saw rural merchants flocking to one small wholesaler to buy products produced by global multinationals.

“Small (rural) retailers come (to the city) about once a month to buy stock,” he said. “They were buying everything for resale. Anything you can imagine. They would spend the equivalent of $2,000-$3,000 once a month.”

But, to tap this rural market, said Mahajan, “a strategy is needed.”

Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFKInsider, Mint Press News and BAM South.