Moritz Stuetzel completed his master’s program in entrepreneurship in August 2014 with a highly acclaimed thesis on modes of market entry for German speaking SMEs to Africa. He focused on the Kenyan plant and machinery market and concluded that East African markets are attractive to German speaking SMEs if they are willing and able to adapt to the needs of the African markets and are sensitive to cultural needs. Michael Neubert, who has specialised in the fields of market entry, international and intercultural management, supervised the thesis.
Africa: Beautiful scenery, nothing else?
When one thinks of Kenya, fabulous landscapes and snow-covered mountains as well as the unique wildlife offering superb conditions for hunting safaris come into mind. However, taking a closer look at the country´s economy is well worth it: Kenya is one of the largest countries in East Africa and the country imports a remarkable amount of plant and machinery. So why not take the Kenyan market into consideration for economic expansion?
With an import volume of about 3.7 billion USD the Kenyan engineering market almost solely relies on imports. Typically for a developing country market, only 5-15% of imports count for state of the art products. Western manufacturers tend to solely target this market segment. 85-95% of sales volumes are made up of standard and low quality products; these segments in turn are dominated by Chinese and Indian suppliers. Currently, producers of economically prized, robust and easy to use machinery are growing the fastest and not (yet) producers of state of the art products. This means that many Western suppliers will have to rethink and most likely adjust their range of products. Often machinery well-proven for years suits those markets the best. Rising loans and an emerging middle-class do point towards a future increase in demand, also needed for a broader economic growth, however, the county is not there yet. Consequently there is a prevailing lack of variety in goods but needs for high quality products in many sub-sectors do already exist.
How to succeed
African markets are often characterized by political risks, unrests, a lack of infrastructure and in some cases by escalating corruption. Due to this very different environment, a market entry to an African country needs thorough and in-depth preparation. This includes the sourcing of market data, which is typically not available in the quality desired, the building of a network of contacts, and the identification of niches allowing for growth. Market entry should be done step by step, ideally starting with exports to an experienced Kenyan importer. Another critical success factor is using a structured and professional framework for the market entry like the company2newmarket process. This process enables organizations to successfully enter new markets in less time, with fewer resources and at lower risk by facilitating four predefined steps. Thereby market entries become more foreseeable and robust.
Besides being proactive, endurance, persistence and realistic sales expectancies are of the biggest importance for successful market cultivation. More opportunities arise once the entry to the Kenyan market is successfully accomplished: Besides the attractiveness of the home market, Kenya is also member to two regional trade areas, the East African Community (EAC) and the Common Markets for Eastern and Southern Africa (COMESA). The EAC membership alone provides Kenya with access to more than 130 Million people. Bordering markets can be entered with less effort, time and money, or one can even relocate parts of the value chain like construction, services or storage, to other countries.
Go for it
Kenya can be seen as a typical example for developing countries. Challenging political and macroeconomic circumstances are contrasted with robust business opportunities. However, only those who are well and early placed in the market can benefit from the arising opportunities.