Despite President Donald Trump’s “America first” approach to dealing with U.S. businesses investing abroad, and despite his administration’s rhetoric about the Middle East and Africa (MEA) region (e.g., strong opposition to the Iran nuclear deal; a ban on travelers from several Muslim-majority countries), many companies are still looking to invest in the region.
Since Trump was elected, Dunkin Donuts has opened its first outlet in South Africa; U.S. oil services provider McDermott International plans to build a fabrication yard at a Saudi Aramco shipping complex; Amazon bought the Middle East’s biggest online retailer Souq.com; and Boeing finalized its multi-billion dollar deal with Iran.
In doing research on multinational operations in the Middle East and Africa, we’ve learned that companies are well aware of how President Trump’s foreign and trade policies could affect their businesses there. However, the region has long been volatile and unpredictable (from coups and sharp changes in government policies, to currency shortages, to terrorism and large-scale population displacements), so operating under uncertainty is not new.
Many companies are assessing their exposure to specific policy decisions (e.g., if the U.S. unilaterally pulls out of the Iran nuclear deal), building contingency plans, and diversifying their portfolio of markets. For instance, the relative scarcity of executive policy statements about Sub-Saharan Africa (compared with, say, Mexico or China) suggests that Sub-Saharan African markets may be able to pick up the slack should new policies cause a drop in demand in the Middle East and other areas.
The region remains attractive. Our research forecasts that it will offer the second-fastest economic growth after the emerging Asia-Pacific (APAC) in 2017. This, combined with a population of 1.5 billion people, makes the region an exciting expansion opportunity for multinationals across industries. Despite lower oil prices, currency depreciations, higher taxes, and geopolitical uncertainty, the region is still rich in opportunities, from selling efficiency-enhancing technology to the Saudi government to offering Western products to 100 million Ethiopian consumers.
Demand creation : To accelerate growth, multinationals need to find new sources of demand more systematically than just looking to sell Western products or launch new products. Companies need to
strengthen their relationships with local partners and government decision makers – as well as invest in their own presence on the ground – in order to spot new problems, trends, customers, and opportunities.
For example, several healthcare multinationals we work with are actively expanding their local teams in Saudi Arabia and investing in improving their staff’s skills in solution sales, value-added services, and government engagement, so they can more effectively bid on tenders to equip new hospitals. This strategy is set up to map to the Saudi government’s 2030 program and its National Transformation Plan, one objective of which is improved public sector efficiency.
In Egypt, where cuts to subsidies (part of a broader fiscal reform program supported by the IMF) are reshaping the local landscape and changing consumer behavior, a services company we work with is helping the government build a new infrastructure for distributing subsidies electronically to the reduced group of eligible individuals. In the process, the firm is gaining valuable access to millions of new consumers and securing market share.
Product adaptation :Adapting product offerings to shifts in customer needs and purchasing power – caused by currency depreciations and greater price sensitivity – is the most critical change that MNCs need to make to ensure long-term sustainability of their regional businesses. The competitiveness of expensive, imported products has been substantially undermined by currency depreciations and cost constraints in markets from Nigeria to Egypt, and from South Africa to Turkey. To continue to reach consumers, MNCs need to market products that offer improved value for their cost or highly differentiated value propositions across a range of customer segments.
Of the firms we polled at our recent executive roundtable in Johannesburg, 30% are dealing with slow-growth markets like South Africa by offering new, cheaper products, which are helping them secure market share. And 45% said that they need to bring new innovations into Sub-Saharan Africa to support their strategic objectives in the next three years.
We’ve seen highly creative ways of doing so. For example, one medical device firm we’ve worked with created easily replicable sets of mobile equipment (as opposed to ones custom-built for individual hospitals), powered by solar batteries, to operate in rural parts of Sub-Saharan Africa. They essentially created a brand-new market for their products in the absence of traditional hospital buildings. Similarly, a chemicals firm that operates in Gulf Corporation Council markets, where cost-sensitivity has become a huge priority for customers, has started to offer maintenance and design solutions that emphasize improved efficiency.
In some cases, product adaptation requires localizing manufacturing in the MEA region; but in many others, it mostly requires changes in how companies work with their sales channel and distribution partners.
Better distributor capabilities: Systematic demand creation and a more differentiated product offering require having skilled partners on the ground. Multinationals are finding that many of their dealers and distributors need to evolve their skills and responsibilities, to move from taking orders and handling logistics to helping multinationals identify new sources of demand, develop market growth strategies, and sell complex solutions. This is especially important in a context of slow growth and rising competition, because companies need to work harder to find new customers and compete against lower-cost players. When we polled our clients working in Sub-Saharan Africa, they ranked business development skills and marketing/product positioning skills as the top capabilities they need from their channel partners to hit targets in 2017.
As a result, we’re seeing multinationals take a more holistic approach to managing and reskilling their local partners. For example, one B2B firm we spoke with was investing in specialized skills training for its Kenyan distributors to support them in making complex sales to larger customers. They sent a team to shadow and coach Kenyan distributors for a month, before moving it to another market to do the same thing. The Kenyan general manager then continued to oversee the partners’ skills development and to monitor their progress as part of quarterly business reviews.
With a focus on uncovering untapped new opportunities, strong product offerings, and more skillful channel partners, multinationals can not only improve their performance in the region, but also build resilience to disruptions they may face over the coming years.