India's revenues from Africa can grow four times: McKinsey
India can aspire to quadruple its revenues from Africa to USD 160 billion by 2025 by developing its presence in sectors where it has a unique value proposition in areas such as IT, agriculture, infrastructure, pharmaceuticals and consumer goods, says a McKinsey report released Monday.
"We believe India's strengths and experience of operating in similar capital constrained conditions will be of great value to Africa. Africa needs constructive foreign investment and holds the promise of long-term business for India," said Noel Tata, chairman of CII's Africa Committee, while releasing the report.
India can aspire to capture almost 7 percent of the IT services market, 5 percent of the FMCG space, 10 percent of the power sector, and 2-5 percent of the agri-allied services business in Africa, says the report -- "Joining Hands to Unlock Africa's Potential A New Indian Industry-led Approach to Africa", released at CII's India-Africa Conclave.
But the report pointed out that to be a true solutions partner, Indian industry needs to continually engage with governments and businesses, proactively surface opportunities through sector and country studies, build an open consortia of interested companies in advance and use funding from low cost countries (like Japan) for large projects where Indian cost of funds is a disadvantage.
Barnik Chitran Maitra, partner at McKinsey, said: "In a partnership of equals, Indian industry could build relationships with African governments and businesses, identify opportunities through sector and country studies, develop an open consortium of interested companies in advance and ensure cost-efficiency through funding from low-cost countries like Japan for large projects."
The report notes that as African nations continue to grow, they need constructive foreign investment. Indian industry, as a solutions-partner to African nations, could greatly contribute to their development - creating employment, spearheading talent and skill development, and developing infrastructure.
To do so, India can leverage its strengths, such as the experience of setting up successful distribution for fragmented consumer markets, and the entrepreneurial mindset required to navigate ambiguity. IT services, consumer goods, pharmaceuticals, automotive, agriculture and infrastructure are sectors where African nations' opportunity can be complemented by the Indian industry's strength.
The report said Africa poses multiple challenges to Indian companies looking to invest there. Challenges in Africa are inherent to any emerging market and include a fragmented opportunity with unfamiliar risks, infrastructure bottlenecks, lack of talent and a nascent financial services sector.
Apart from the sector specific initiatives, Indian companies will need to adopt 10 common imperatives identified by studying successful and unsuccessful MNC businesses in Africa:
-Prioritise early - Identify priority sectors and countries quickly and set up strong business organisations there
-Go granular - Understand local nuances and adapt business models accordingly. Africa is one continent with 55 different countries, each with its own culture, customs and behaviours
-Expect to iterate - Customise approach based on continuous learning. There are no fixed answers to succeed in Africa; hence, companies should be ready for initial disappointments and tune their business model accordingly
-Choose distribution channels carefully - Understand and control the route to market for success in such a fragmented geography. This is a challenge which Indian companies have mastered on the home turf, and must now face in a geographically larger context
-Build brands aggressively - In Africa, brands are considered to be the clinchers in making purchase decisions. Hence, brand building, especially in the consumer goods sector, is critical.
-Deliver value across price segments - Innovate to meet the entire range of needs as the landscape is still open for brands and whole categories. In the consumer goods sector, Indian companies can meet this challenge with their wide product ranges
-Think long term - Business in Africa cannot be built quarter-to-quarter-companies must be willing to invest for the long term, spend effort on setting up the business' roots in the country, and only then achieve success.
-Involve locals and insiders as partners - This is necessary to get local insights, benefit from regulatory know-how and develop relationships. The ultimate aim must be to become the insider
-Partner with local governments - Governments in most African nations play an important role in business development, and partnering with them is crucial to creating opportunities.
-Invest in building local talent - Given the relative lack of local talent, developing talent will play a critical part in scaling up any business, and must be invested in proactively.
(Posted on 10-03-2014)