900 Million Consumers Knowledge
When multinational companies want to tap into the massive pent up consumer demand in emerging markets, the first countries that they usually think of are China and India. Though often overlooked in global corporate growth strategies, he argues, Africa as a whole has enough consumer power to give China and India a run for their money.
Having returned from various fact finding missions, he uses his new book to dissect the vast, complex markets of Africa, starting with a look at the home grown entrepreneurs who have overcome political, economic and social barriers to grow and innovate. For multinationals, particularly those facing shrinking revenues from other emerging markets affected by the global economic downturn, the lessons are timely.
The topic isn entirely new for Mahajan, a marketing professor at the University of Texas in Austin.
An edited transcript of the conversation follows. Like most of us, I did not realize until I started working on the book that the population of Africa at about 950 million is comparable in size to the population of India. And if you look at growth rates, the population could be equal in size in a few years to the population of even China.
The next point is about market opportunity. Are there consumers in Africa who have the resources to buy products like consumers in India and China do? The fact is that the GDP of Africa that is, looking at the continent as if it were a sort of United States of Africa is actually higher than India If all the countries in Africa combined forces, they would be the 10th largest economy in the world, one notch above India, and ahead of the other big emerging economies, Brazil and Russia. and European multinationals. And at the end of the day, I was convinced that the market opportunities in Africa for all kinds of products are similar to the market opportunities that you see in places like India.
Why has Africa been ignored? That has puzzled me. or Western European companies than I did. multinational with an exceptionally big presence is Coca Cola. It has been there more than 90 years. Another company with a big presence there is Unilever, the Anglo Dutch consumer goods producer. So while there are some multinationals, it not to the same extent as what I saw in India and China when I was researching my previous book, The 86% Solution.
The other thing is that here in the United States and in other developed countries, we get nothing but bad news about Africa in the press. Not to criticize CNN, but you know how badly the Africa that is portrayed in the media like CNN is. The CEOs I was interviewing were so happy that, for the first time, a professor from America was interested in learning about what they were doing.
But it could just be a matter of time. When I started working on The 86 Percent Solution 15 years ago, I used to hear the same stories from many Indian and Chinese entrepreneurs. H oakley outlet ow is the market structured across the different countries?
Mahajan: The market is not different from any other developing country. After speaking with a lot of advertising agencies, multinationals and local entrepreneurs, I decided that there are three major groups in Africa, which I refer to in the book as Africa 1, Africa 2 and Africa 3. The terminology is actually taken from an Indian entrepreneur mentioned in the book.
Africa 1 comprises between 5% and 15% of the population of each country. These people could be from anywhere in the world. They may be senior government officials, expats, people working for [non government organizations], people working f oakley outlet or large, international banks. This segment was not as interesting to me as the others.
The segment that really was interesting is what I call Africa 2. People in this segment are neither poor nor rich; this segment comprises average people living from month to month. They may have some savings. And you can guess that these people are civil servants hardworking nurses, hardworking teachers and so on or work in the hospitality industry.
This segment has very high aspirations. These people believe Africa is going somewhere, and they are upbeat. I spend a lot of time in the book on what a big opportunity Africa 2 is. The size of this group is between 35% and 50% of a country population, the equivalent of between 350 million and 500 million people.
Now, Africa 3 the remaining 35% to 60% of an African country population is the one that is struggling. These are the stories that you typically hear about. But that number is not any different from other developing countries. After all, there are 700 million people in India and 750 million peop oakley outlet le in China who do not have access to a toilet. What interesting about Africa 3 is that many of them work for Africa 2 and Africa 1, as maids and the like, and they aspire to perhaps one day be part of Africa 2. The name is the Swahili word for the rolled metal roofing that many Kenyans use for their houses. For people in Africa 2 and Africa 3, one of their main goals when they save some money is to build a house. So they build one room at a time, which may take years to complete. And they need a roof that is, the 20 to 30 roofing sheets they need, which they will slowly buy, two or three at a time. You will often see people transporting the sheets on top of a taxi or balanced on two bicycles. Mabati entrepreneurs saw that need and the company is now the dominant manufacturer of the $180 million metal roofing market in Kenya. It also continuously updating its product lines, and now exports to around 50 countries world wide.
Then there the film industry. The quality, of course, is questionable. And many countries do not have cinemas, so every Nollywood movie is available only on tape, not even DVD or CD.
Another burgeoning area is cosmetics or personal care products, keeping in mind that African women are not any different from women anywhere else. While many multinationals have not tailored their products as much as they could to suit African consumers, locals have, and so you will see a lot of local hair products.
There also a big market for used, or second hand, products. When you or I change our mobile every two or three years, we do not even think about where it might end up. Actually, the used mobiles from Europe and the United State often go to Africa.
And interestingly, death, too, has a role to play. Although it may not be openly admitted in many of these countries, death is often a celebration. Many people use their savings if someone close to them dies, and they host a wake or what have you. You can imagine when a whole community is invited. So some companies have been set up to cater to those occasions. What are multinationals doing to serve the underserved markets in Africa?
Mahajan: In the last chapter of the book, I talk about a Zulu word meaning, am because you are. In other words, we are in oakley outlet this together. Desmond Tutu uses the word to evoke harmony. And I tried to give it a business twist. The way I see it is that companies cannot exist unless they take care of their employees and they take of their customers.
Unilever, meanwhile, is involved in HIV initiatives that I saw in Southern Africa, which are very different from other initiatives. There they have focused on the orphans of families where both the parents have died because of AIDS. Unilever helps to find adopted mothers to raise these children.
Beyond ubuntu, something else that you see at successful multinationals in Africa is a very clear understanding of consumers. They know that they have to do more on this continent [than in other developing countries] given the spectrum of the consumer they have to deal with.