A large number of small and medium enterprises (SMEs) do not have faith in Africa after it emerged that approximately 40 per cent of global SMEs do not perceive Africa as a growth opportunity.
The Breaking borders: From Canada to China, barriers overshadow growth for expanding SMEs study reckon that despite the positive economic growth stories and growing middle class in Africa, SMEs have little confidence in the continent.
The study, which was conducted by the Economist Intelligence Unit on behalf of DHL Express, further reveals that while many multinationals and state-owned companies are actively taking advantage of the opportunities that Africa offers, SMEs still remain apprehensive and are instead choosing to trade with other emerging markets.
Charles Brewer, Managing Director of DHL Express Sub Saharan Africa, says that despite current challenges to attract global SME interest, the findings of the study highlight the untapped potential that still exists in the continent.
“The fact that SMEs expect to generate up to 50 per cent of revenues internationally by 2019 is a massive positive and highlights the vast opportunities for Africa from an investment and job creation perspective,” he notes.
According to the study, which surveyed 480 SME executives and experts from business lobbying groups, SMEs are deterred by Africa’s low average consumer spend, cultural and infrastructure challenges, as well as inefficiencies such as corruption and political risk in the region.
Besides, overcoming different market environments was found to be the biggest hurdle. The quality of a target market´s infrastructure, the stability of its politics, administrative costs for establishing a local presence and cultural differences in doing business were all cited as factors that deterred SMEs from entering new markets.
The unfamiliarity of foreign markets received particular attention, with 84 per cent of respondents describing understanding a target market’s culture or language as important or very important in determining its attractiveness. This also explains why most SMEs often expand into markets that resemble their own.
“This is evident in Africa, as companies looking to expand into the continent often make use of a ‘one size fits all’ approach,” says Brewer.
He adds that due to the various cultures, languages and customs on the continent, vast amounts of research need to be done into each region, and the services and products need to be specifically tailored to each country.
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