The Hindu Business Line : Out of Africa

If you are a business conglomerate with a reasonable track record of success across a number of businesses it is only natural that you should want to expand overseas. Now, the decision involves consideration of a number of issues of a strategic nature. But of the many, the key question would be, where does one set up shop?

The Tata solution to the choice of a particular market in search of business opportunities is an interesting case study on the policy framework that a conglomerate business can adopt.

The Tatas have, for their overseas foray, chosen to go with Africa in a big way. Their current business interests in Africa covers a vast stretch of that continent, from Senegal in the far West to Kenya in the East. Also it has chosen to enter with a number of businesses ranging from steel to horticulture or automobiles to telecommunication.

Implicit in the description of the Tata Group's choice as Africa is the idea of a market defined in broad regional terms as opposed to specific countries. There is a strong conceptual merit behind the proposition. National economies are increasingly getting grouped under various regional arrangements. Practically, the whole of Europe is organised under a common market called the European Union. Key South East Asian economies are grouped together as ASEAN countries. Then, of course, there is the North American Free Trade Area which is a preferential trade arrangement involving economies of US, Canada and Mexico. In the event, it is a useful strategic discipline to view markets in terms of larger regional groupings rather than as nation states unless the economy of a country has large continental dimension.

Now, why Africa and not say, the West? At one level, the choice depends on the nature of the product/products that drives one's entry into a particular market. If, for instance, you are engaged in pharmaceutical business then the US market is the place to be whether one likes it or not. Look at it this way. In the US, a single therapeutic segment could account more sales than the total expenditure on health by an entire nation in Africa. The income levels in Africa being what they are, even a blockbuster drug for curing cancer or a better anti-malarial drug, may not fetch much revenue for the company unless the Bill Gates Foundation steps in to purchase the drugs and distributes it for free among the afflicted.

As against this, it must be said that the process of entering markets of the West is the military equivalent of a frontal attack. Now, the problem with frontal attacks, as military strategists would point out, is that it is best employed when there is no other option or when you have superior fire power of such a magnitude, that you can overwhelm the enemy through a combination of shock and awe as the United States demonstrated in Iraq to overcome resistance from the incumbent regime. For sheer effectiveness measured in terms of speed and ease of entry into a hostile territory, it is difficult to argue against the US approach. Of course, it is another matter that the US did not have a strategy in place for sustaining the initial advantage in Iraq to sustain and grow the market, if one may use a management metaphor to explain imperial occupation.

That apart, the problem with this approach (frontal attack) to market penetration is that it is also very resource intensive. You need enormous staying power in terms of investible resources as you fend off hostile moves by entrenched players. So if you have money to burn then, of course, you could very well adopt this strategy.

Viewed thus, the Tatas' choice of Africa makes eminent sense. It provides a nurturing political environment for businesses from a developing country such as India. This is an important consideration. Countries are prone to fits of xenophobia. You do not want to be fighting the political/regulatory establishment in the host country which views your arrival with a tinge of prejudice or worse, suspicion in addition to battling with the competitors in the market place. Not that you can't overcome the odds. But it is a distraction you can do without if there are opportunities to be pursued elsewhere.

This where Africa scores as a potential destination of Indian investments. Despite the emergence of a unipolar world with the US at the core, the spirit of the Non-Aligned Movement still suffuses relationship among developing nations. Africans no longer believe in the invincibility of the West in the business realm as they have seen how enterprises are struggling to cope with competition from China in the manufacturing sector and India in the IT and IT-enabled services sectors. More importantly, they have realised that the recent good fortune in commodity prices has more to do with flourishing economies of China and India rather than any munificence from the West. There is thus an established corpus of goodwill in Africa, for enterprises from the developing world that Indian businesses can hope to leverage.

Once you choose to enter Africa, the choice of South Africa as the principal base of operations is a no-brainer. South Africa as the most prosperous economy in that region offers a ready market. It also enjoys a leadership position in the politics of the continent whether it is a political crisis in Zimbabwe or ethnic conflicts in Congo, South Africa is called in to mediate and help resolve them. It has a customs union with neighbouring countries such Botswana and Lesotho. There are prospects of that regional economic grouping to expand. That shouldn't hurt either.

(To be concluded)

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