The East African region stands out as one of the most coveted destinations for business expansion in Africa, attracting companies from both within and outside the continent.
While many enterprises have successfully entered this market, others, particularly those from Southern Africa, have encountered significant challenges and, in some cases, failed to thrive.
A history of failure
Some of the Southern African companies that have bit the dust after an ambitious launch in the East African market include:
- Shoprite
Shoprite Holdings, Africa’s largest retailer made its debut in the East African (Kenya, Uganda, and Tanzania) market in 2015 and was met with great expectations, bringing along lots of job opportunities.
However, despite the anticipation, it would face numerous challenges followed by huge losses that led to its calling it quits in 2021.
- Games Store
Another South African retail store that found its way into the East African market was Games Store.
According to Johannesburg Stock Exchange analysis, Games Stores failed to register a good number of domestic buyers which led to huge losses.
In 2020, the store called it quits. The CEO, Mitchell Slope, claimed that the East African market was not as much of a potential buyer as they had anticipated.
- Choppies
Choppies, a Botswana supermarket chain, came to the East African market, particularly Kenya in 2016. The aim was to take over the then-fallen Ukwala Supermarket chain.
However, the competition from local supermarket chains such as Naivas and Quickmatt that target the same middle to lower-class populations led to significant losses and eventual closure.
- Builders
The Builder, a subsidiary of the Massmart retail stores in South Africa set foot in Kenya in 2020.
Failure to localize product offerings, understand consumer preferences, and effectively compete with local and international rivals meant a short-lived 3-year attempt that failed.
- The Foschini Group
The Foschini Group, one of the leading retail clothing stores in SA, found its wings in East Africa only to struggle with connecting with its prospective consumers, leading to its eventual closure.
- Tiger Brands
Tiger Brands, a South African firm that deals in fast-moving consumer goods bought a 51% stake in the late billionaire Chris Kirubi’s Haco Industries in 2008 for an undisclosed amount followed by US$ 0.5 billion investments to expand and revamp Haco’s manufacturing facilities in Nairobi, Kenya.
However, due to ideological differences, Tiger Brands would sell back its 51% stake in Haco to Chris Kirubi at a mutually agreed sum in 2017.
A look at East Africa’s market dynamics
This phenomenon begs the question: Why do Southern African companies struggle to establish themselves in Eastern African markets?
According to Chief Economist, Ken Gichinga, “While many South African companies understand the promising macroeconomic landscape of Kenya, they don’t spend enough time appreciating the equally important microeconomic elements of consumer behavior, price sensitivity all of which are aspects of behavioral economics. In the end, they fail to connect with the customer,”
Businessempires.africa explores some of the reasons Southern African companies struggle in East Africa:
- Lack of market understanding
One of the primary reasons behind the struggles of Southern African companies in Eastern Africa is their failure to grasp the nuances of the local market.
There exist stark differences between the consumer preferences, purchasing power, and demand dynamics of Southern and Eastern African countries.
Notably, the lower middle-class income in Eastern Africa significantly impacts purchasing behaviors, necessitating tailored strategies that many Southern African companies fail to implement.
- Cultural differences
Eastern African countries boast diverse cultures and languages, each with its unique business etiquette.
Successful penetration of these markets hinges on a deep understanding of local cultural nuances and consumer preferences.
Unfortunately, some Southern African companies neglect to account for these cultural disparities, resulting in misunderstandings and decreased customer engagement, ultimately leading to business closures.
- Local competition
Eastern Africa presents a fiercely competitive business landscape, with established local players dominating various sectors.
Southern African companies often find themselves pitted against these formidable competitors, who possess an innate understanding of local market dynamics and consumer behavior.
Consequently, failure to effectively navigate this competitive environment can diminish the market presence and viability of Southern African enterprises.
- Regulatory compliance
Each country within the Eastern African region maintains its own regulatory framework and business environment, characterized by distinct rules, taxation policies, and legalities.
Failure to adapt to these regulatory intricacies can expose Southern African companies to compliance issues, legal liabilities, and fines, impeding their ability to operate effectively in the region.
- Logistical challenges
The varying levels of development across Southern African countries and Eastern African markets introduce logistical hurdles for expanding enterprises.
Bureaucratic obstacles and supply chain inefficiencies can inflate operational costs and disrupt business operations, leading to decreased customer satisfaction and financial losses.
Consequently, Southern African companies must navigate these logistical challenges adeptly to ensure sustainable growth and profitability in Eastern Africa.
- Lack of local partnerships
Establishing strong relationships with local partners, suppliers, distributors, and stakeholders is essential for success in Eastern African markets.
Unfortunately, many Southern African companies fail to recognize the importance of these local connections, hindering their ability to penetrate the market effectively.
Without leveraging local partnerships and networks, these companies struggle to gain traction and sustainably grow their businesses in the region.
While the Eastern African market presents lucrative expansion opportunities, Southern African companies must address a myriad of challenges to thrive in this competitive landscape.
By enhancing their understanding of the local market dynamics, fostering cultural awareness, and establishing robust partnerships, these companies can position themselves for success and capitalize on the vast potential of Eastern Africa’s burgeoning economy.
While the East African market has proved to be a difficult business environment for most of these companies, other multinationals have succeeded including French retail chain Carrefour and many other large conglomerates that have their regional headquarters in Nairobi.
