African startups facing the arrival of digital giants
In recent years, the African market has become a prime target for multinationals and Western and Asian digital companies looking for expansion and new growth reserves. But what impact does this trend have on African start-ups and digital companies?
The installation and expansion of Western and Asian groups on the Continent is neither recent nor limited to the digital and technological sectors. This week, Alassane Dramane Ouattara, President of the Republic of Côte d’Ivoire, personally inaugurated, during a ceremony with great fanfare and well publicized, the first shopping center of the French group Carrefour in Abidjan, the economic capital of the Côte Ivory. For the Ivorian authorities, it is a symbol of the country’s economic emergence. However, some observers believe that this is not a systematically reliable indicator of the good economic health of the country, and that the installation of large foreign groups does not necessarily go in the direction of wealth creation. national.
African markets increasingly interest global digital giants
The attraction of the world behemoths in the food industry and mass distribution for the African market is well established, and the sector of the digital economy is no longer outdone. Thus, WeChat, the Chinese leader in mobile messaging, is trying to gain a foothold in Africa (via Nigeria and South Africa), with millions of dollars and strategic partnerships. The German giant Rocket Internet, specializing in the replication of successful digital business models in emerging markets, is now present in more than thirty African countries, through ten companies.
If the arrival of these foreign groups on the African digital market is often presented as the sign of a certain good health of the digital economy of the Continent, it is clear that this does not necessarily go in the direction of the emergence and the growth of local actors, and the maturity of African digital ecosystems.
Impact of the arrival of international giants on African startups
Among the main challenges facing digital startups in most African ecosystems are access to skills, access to appropriate financing mechanisms, and the size and maturity of markets. The figures for mobile penetration and growth in internet penetration (which is still very low, it should be noted), regularly quoted, give a biased reading of the maturity of the market, and of appetite for products and digital services. The market accessible to digital entrepreneurs corresponds in reality to the population with regular access to the Internet (via mobile or not), and having the capacities and means (financial means, means of payment) to procure digital products and services. When compared to national scales, this target market is quite small, and considerably limits the capacity for growth at the national scales of local startups.
To cope with this particular situation, startups can respond in two ways: to conquer more mature markets, internationally, or to bet on the long-term growth of local markets. Conquering the international market requires in-depth knowledge of the target markets, as well as a capacity for adaptation and advanced disruption. Betting for the long term implies substantial investments in capital, through channels different from the conventional mechanisms which are de facto unsuitable, to support the growth effort of the market.
It is mainly the questions of scarcity and access to investment mechanisms, and skills to address the needs and specificities of international markets, which constitute the main challenges faced by African startups. However, they must now also face the arrival of foreign international groups, endowed with enormous financial means, and significant experiences, which, if they are not necessarily replicable to the letter, serve at least as a springboard. In the area of e-commerce, for example, many local businesses suffer from competition with international groups, which have enough resources to cross the “valley of death”, while waiting for the market to be mature enough to allow real economies of scale. In addition, in contexts where talents and skills are scarce, young local digital companies have to face the recruitment machines of their international competitors. In this game, they generally come out losers, since they are unable to offer alternatives that can counterbalance the generally attractive salary proposals of the competition.
In the coming years, if the current trend continues to worsen, this could have two major consequences for African digital economies. First, it could create an inhibition of local initiatives, responding to local needs and specificities, and increase the failure rate of digital businesses, where the risk of failure is already higher than the average. Second, we may end up with consumer ecosystems that do not encourage local innovation and creation.
Prepare to conquer the world
To address these risks, certain measures can be considered. It is above all a question of setting up new financing channels responding to the realities of our digital economies. Channels allowing early stage companies to put more resources on innovation and taking into account needs and demand in the development of their product or service, without being too affected by the slow adoption rate. ” definition of the business model, consequence of the perfectible maturity of our markets. Indeed, the classic financing alternatives available today (bank credit, equity, startup competitions, hackatons, innovatons, etc.), do not fully meet the particularities of the digital economy and innovation. It will then be necessary to equip African digital companies, and prepare them to conquer other sub-regional markets, and the world. This will require understanding these markets, and creating bridges, to exchange experiences of success, but also of failure.