Indian Inc Explores Africa

Instead of fretting over crowded markets in Europe and Asia, a few companies (Apollo, NIIT, Tata Steel, and Skipper Energy to name a few) looked at Africa. These companies had to do a lot of unlearning, think differently about business models, work with the governments and the local community and wait patiently to get back in the black.

Today, these pioneers are success stories in Africa. Here, the executives of these companies talk about strategy, formulas and market savvy targets.

NIIT
When NIIT decided to set up a training centre in Botswana, they were venturing into uncharted territory. No Indian training company had ventured into Africa. Today the bet paid off and NIIT has established centres in eight African countries. NIIT has trained nearly 150,000 students since it began operations in 1997. G Raghavan, President, NIIT Global Individual Learning Solutions speaks of the company’s experience

G Raghavan, President, NIIT Global Individual Learning Solutions

NIIT’s Entry Strategy
As a continent, Africa has got opportunities for Information and Communication Technologies (ICT) capacity building. That requires human capital and we can add value and create capacity to the nation we are present in. That would help build services-based economic growth in the country. In these countries, human asset is really big. IT training would help add to employment and fruitfully engaging vocations. In some countries, IT training renders people mobile. They can be employable in other countries as well.

Continental Formulas
We realised that we would be in it for the long haul. We did not expect dramatic results. We knew we need to go country by country. The North of Africa is very different from the West which is different from the Central which is different from the South. This is in terms of natural resources, political stability, and economic stability. We realised we have to win country by country and there is no continental formula.

When we evaluated each country, we looked at parameters like:
•    Youth coming out of high school where we see ICT having a reasonably favourable position in the country. The youth were open to moving to another place for a job.
•    Academic orientation of the country and policies encouraging skills training organisations like ours. Botswana has a Tertiary Education Council which is an accrediting body — they had a mechanism to include non-formal players like us.
•    A country that was hungry to move towards a services-based economy and eager to absorb skills in ICT area.
•    The size of the opportunity matters too. Botswana is a very small country. But when you superimpose factors like government focus, government funding in education, the size of the opportunity is actually huge and it all turns out to be very favourable.

Local Partners Make Sense
We work in all these countries with partners so that we have more access points — somebody who has been in the country, knows the job and skills requirements and also knows the students’ capabilities. The partner helps you understand the landscape in granularity. Our partner in Botswana is an Indian couple who have been very well entrenched in the country for 30 years. Their job was to get the physical centre up and to get the local government’s permission. Our job was curriculum, design, course content, training teachers, technology and branding.

On Expansion
We will expand first in South Africa and then West African countries. We will increase the product depth where we are all already present. We would like to double the number of our centres in Africa and also the number of students in three years. We are there for the long haul. The business has been profitable. We have a long journey to go in terms of product breadth and expansion. Africa in terms of opportunity is quite comparable to China and India.

What Does It Take to do Business in Africa
Across Africa there are differences in the state of economy, economic development and mineral resources. There are variations with regard to the presence of academic institutions. In some countries, the government is proactive in getting skilled people to move up. Others are passive. We need to keep all those things in mind. Eventually, we want to be everywhere. We need to work with governments and private institutions alike.

While doing business in Africa, patience is an important. Sometimes the results will not pay off till a while. For the first four years, the number of students we had was very small. It took a while for Botswana’s Tertiary Education Council to recognise us. It takes a little long time to build a solid footprint on the ground. We have taken a long time to get there. When we looked at the numbers in the first four years, we could have said let’s pack up and go.

It’s important to know how the education system works, what kinds of students are available, what the paying capabilities of the students are like.
 
Synergy with the Country
You must align your objectives with the objectives of the government. You must aim for synergy. I have found progressive governments that are playing a role in bringing education forward like the Kwazulu-Natal province in South Africa, or Botswana. South Africa has been active in formulating an ICT strategy for the country. There are many progressive governments out there who want to engage with private and foreign players to improve availability of trained talent.

Hiccups Along the Way
Money remittances from African countries to India can be very bureaucratic. So, sometimes it takes very long for money transfer to happen. For remittances, we take in the fact that there will be delay. We live with the process. You need to factor in these challenges into your equations. You take a decision on whether or not to go in there now or later. If your business is low-margin and cannot take this cycle time in remittances, then you must not enter that country. Sometimes the terrain is not easy to travel on or safe. Some of the markets are tough personally. In Lagos and Johannesburg particularly, people have to be careful. You can’t freely move around like in places in India.

Teaching talent availability has not been a show stopper for us. We always train local talent — whether it is in China, Vietnam or Africa. Our own curriculum is well standardised that we’ll be able to train faculty fairly quickly. We invest in training of faculty.

Tata Steel KZN (Pty) Ltd
In 2000, the Tata Group decided to set up a ferrochrome plant. After evaluating 30 countries, they zeroed in on South Africa and Australia. Tata Steel KZN was almost deciding on Australia, when the South African government offered them a significant incentive package. They also helped them get land in an industry development zone, the equivalent of an SEZ. This was Tata Steel’s first overseas greenfield venture. Somdeb Banerjee, managing director of Tata Steel KZN, talks about the journey so far. Excerpts from the interview:

Preparations before the plunge
The problems you encounter in setting up a business in South Africa are very different from setting up a business in a developing country. In South Africa, the environment is a very important factor. Getting environmental clearance took us close to three years! India is seen as a country that isn’t conscious of environment. And that’s despite Tata Steel being the first company globally to get an ISO 14000 certification

There is infrastructural support here. Our site has road, water and gas connections — it’s on the periphery of the city. When you are constructing something, it’s much more difficult though. The construction norms are very stringent and productivity of construction work is very slow. You have to plan out how you can modularise away from the site and bring it in. You can do it much faster that way.

The workforce here is more like the unionised set-up we had in India in the 1980s. South Africa is still a country in transition, so labour unions are very active. That’s why we aim for as high a degree of education in our plant as we can get. For starters, everyone here is a matriculate.

We feel that the more educated people can think rationally. They are not swayed by one person’s lecture or rhetoric. We have tried to train our workforce to a very large extent. We took matriculates with maths and science backgrounds and trained them and put them in the job.

Africa Just Makes a Lot of Economic Sense
Africa is really the last frontier for minerals. It’s all over the place. Mozambique has gold. South Africa has gold, platinum and iron ore. Namibia and Zambia have copper. All the countries have a very large resource of minerals plus a natural advantage. They sit between the markets of Europe, Asia and North America.

It takes 13-18 days of sailing to get to India. For the US, it is 21 days and Australia it is 23 days. They are all equidistant.

Africa is second most populous continent after Asia. They will need to up their standards of living. So at a later point, the home market will hopefully drive for development and need products.

Keeping the Skills Pipeline Full
As far as skilled manpower is concerned, we are probably better off than most of the others. We work on training. Everyone we train may not work with us forever. We know that too. So, we are trying to have a constant input of manpower and skilling on a constant basis. We develop skills locally — the possibility of retaining local people is much higher than getting a person from other places.

HIV-AIDS is very high in Sub-Saharan Africa. The incidence of infection is 25-30 percent, so you need to factor in the possibility of losing your workforce. It is very important for companies to understand that you need to have a younger workforce and constantly train them.

Enlist Empowerment Partners
We have to have a local mentality when we set up business here. In South Africa, if you want to expand and do well, you need to have ‘empowerment partners’. South Africa got freedom only recently. Before that blacks and Indians were low in society compared to whites. The government is ensuring that there is reservations and they get jobs now. Here progressively this is happening in mineral resources industry- nearly 30 percent involvement of these people – they have to have an equity stake in your business. This might become a norm in manufacturing [industry] as well.

The Hiccups
Governance issues are questionable in some other countries in Africa. We need to ensure that the government gives commitment in terms of assisting investors. You can’t invite investors and leave them high and dry. This does not happen in South Africa. Mozambique and Namibia are very good in this regard. But there are others that aren’t.

Exchange rate fluctuation is a big risk factor. Even the South African Rand fluctuates a lot. Political risk is a very important factor you need to account for. South Africa is very stable in that. In countries like Zimbabwe, the political risk is very high.

“We are 5-10 years too late”
 The Chinese don’t speak English, yet they do business everywhere. They have a lot of government support. Our consulates and high commissions are supportive but nowhere as near as Chinese government is. We battle with the Chinese everyday. When the Chinese set up a company, you suspect they get funding and tacit support from their governments.

In Angola, China’s dominance is almost complete. Zimbabwe was assisted in the freedom struggle by the Chinese. Their relationship is on the borderline of economic colonisation because Africa is rich in minerals. We are supported by the government, but the Indian government is only waking up now to the absolute necessity of ties with Africa. We are 5-10 years too late.  

Apollo Tyres South Africa Pty Ltd
When Apollo acquired Dunlop in 2006, it was touted as the largest Indian investment in South Africa. Apollo Tyres South Africa Pty Ltd, as it is now called, is among the top three South African tyre manufacturers and has the highest market share in passenger car and truck bus tyres in South Africa. Apollo Tyres CFO Sunam Sarkar walks through the company’s Africa foray and the challenges that remain.

Why Africa?
In our internal strategic planning in 2005, we drew a map of the world’s tyre industry as we saw it. We drew two concentric circles. The inner circle comprised of 60-65 percent of the total market and this part is dominated by global majors like Michelin, Goodyear and Bridgestone. The outer circle comprised 40 percent of the total market. This part didn’t really have any of the major tyre manufacturers because they were looked upon as opportunities in a challenging environment.

We decided that this is where the opportunities lie for us. We didn’t want to go head-on with the global majors. The 40 percent really comprised of Africa, South America and parts of Asia Pacific. But out of these the most compelling was Africa. It came across as a market with huge future potential. We decided that the others can come later.

Apollo’s Entry Strategy
One amongst the major determining factors we considered was market size, operating companies that were available in these geographies and environment.
When we drilled down further, we found tyre operating companies in Ethiopia, Egypt (a local company), Morocco (a former Continental plant) and South Africa (Dunlop). The process of due diligence took 5-6 months.

We chose South Africa and Dunlop  and with that came Dunlop’s subsidiary in Zimbabwe. One reason was the regulatory systems in South Africa. South Africa has a judicial system which is familiar to us (India’s).

South Africa is the largest domestic market within Africa. As a country, it has a First World road infrastructure. That is great for the tyre industry. There is lots of vehicular movement and, therefore, tyre consumption. This company was owned by a private equity fund called Ethos Fund which was looking for a buyer at that time.

Language was a big advantage too. We would be able to easily depute people there if the need arose. Also the location was better than Morocco, which is a French-speaking country. The education system in South Africa is also very good.

Future Plans
Apollo may not go beyond these two countries in Africa immediately. We recently opened a sales office in Nigeria. We may look at somewhere towards the North of Africa to beef up our presence there. After Nigeria, we would look at Egypt, East Africa, for sales offices.

We have three core operating entities — India, Africa and Europe. Africa is now second to India and ahead of Europe. Europe is a developed market and growth will taper off. Opportunities still exist in South America and other parts of Asia Pacific.

The Challenges
The currency has been very volatile. The South African Rand has gone been up and down vis-a-vis the dollar. We import raw material and export tyres. So, we keep suffering or gaining due to fluctuations. In South Africa and many parts of Africa, one needs to factor in the security situation. There are skill issues as well.

Skipper Energy Ltd
Skipper Energy Ltd, a manufacturer of transformers, switchgears and electric substation equipment, set its sights on Nigeria in 2000. While they had been supplying to Nigeria since 1992, there was a recession in India in 2000 and business was slow. Nigeria, with its huge population, seemed like a great new growth avenue. Over the years, the Nigerian unit generated sufficient revenue, and today has investments worth $2.5 million and an order book of about $110 million. Its turnover last year was $25 million. Jitender Sachdeva, group president, speaks of his experience.

Opportunity Nigeria
In 2003, we thought of putting up a unit in Nigeria to manufacture metering units. There was a lot of demand for accurate metering. The metering there was in a shambles, the collection of the electricity companies was very poor. So, we put up a plant for the manufacture of industrial meters for medium voltage metering products. That picked up very well.

Then on we took up repair of power transformers. We were manufacturing in India, and thought of complementing it. So, we started a support service. Since 2004, we have repaired about 35 of them, and they are working without any problems. Now, this unit is accredited by almost every West African country — Togo, Benin, Burkina Faso, Cameroon, Chad and Ghana.

Nigeria has a population of 150 million, the largest in Africa. And where you have users you have opportunities. But you have to be a fighter against all odds and if you are bold you can get through. People should come, but using the right connections; coming alone you might get lost. It is very important to come with the right associations. It is important to have local partners. We fortunately were able to go it alone.

Watch Your Back
There are difficulties such as security issues and sometimes you run into an uncommitted attitude. Today, you get an order and tomorrow it becomes a fake. We stayed on because we found the right connections, people at the ministry level and people in power companies. Once you go to the key positions and then you find the right customer, then you will find the truth. If you go through different channels, there could be limitations and hurdles. But people welcomed our price and our quality and they gave us support.

Local Talent
We employed expatriates from India originally and thereafter, we started employing locals. Today, we have about 30 expats and about 200 Nigerians. And there is no issue about training local people, they are very intelligent. The only problem is they have not been given opportunities. Our plant today is managed and run by Nigerians. I have only one expat working in the factory (for electrical equipment) in Ikorodu industrial area in Lagos, among about 50 engineers.

Dr. Reddy’s Labs South Africa
Indian pharmaceuticals have a potentially huge opportunity in Africa. South Africa, for instance, is rolling out a $500-million plan to provide antiretroviral to everyone. This translates into a huge opportunity for companies like Dr Reddy’s Labs, Cipla, Ranbaxy and Aurobindo Pharma. Dr.Reddy’s Labs South Africa CEO Dr. Vikash Salig speaks of the adventure in Africa and the challenges that lie ahead.

The South African Adventure
Emerging markets, including South Africa, are strategic to Dr Reddy’s. As a result of the recent alliance with GSK, Dr Reddy’s capabilities in penetrating these markets are enhanced. The penetration of generics in the South African market is only 50 percent and when compared to the US (70 percent) and other markets this split is low, given that South Africa is a developing country.

The generic penetration in South Africa is far, far too low. Medical inflation is outstripping GDP growth. The cost of private healthcare is increasing at a rate that is becoming more and more unaffordable. India offers a wonderful base of high quality low-cost manufacturing operations. They offer us the opportunity to transfer technology and skills. Through good strategic alliances, through joint ventures or strong distribution models, the ability to collaborate with a powerhouse like India can only help us in South Africa.

How to Overcome Teething Troubles
The greatest difficulty facing Indian manufacturers and the industry as a whole is the long lead time to have products registered in South Africa. The innovator companies have traditionally challenged generics on the basis of quality and efficacy and disparagement has also left a doubt in the mind of the medical fraternity and the consumer.

We are conducting several awareness and educational campaigns on generics with regard to therapeutic equivalence. The government has assisted in these educational programmes but more can be done. We do not have a problem with generics from agencies.

The strategy being adopted by Dr Reddy’s, and more largely, by Indian companies is to lobby to improve registration lead times so as to enhance competition which will drive down prices and create savings. We are also undertaking awareness and educational campaigns on the quality, safety and efficacy of generics and in particular Indian generics.

The Paradox in the South African Market
South Africa is an unusual market in the sense that we have a very strong First World component as well as a very emerging third, or some even talk of a fourth world environment. And you have a two-tier health system. A private sector which is heavily reliant on branded innovator products and a healthcare system which is clearly reliant on lower cost generics.

Indian Contribution
The contribution from India is very significant but we believe there is a lot more that can be done going forward and clearly that will have to come from political as well as business will.

India is probably where Japan was in the 1960s and 70s, trying to establish itself in the global marketplace, and sadly, one of the strategies that we find that emanate from vested interests and to some extent from innovator companies is to place concern around quality, safety and efficacy of generic products. And given the momentum India has created, they seem to be facing the brunt of it.

Raman Dhawan, managing director, TATA Africa
Tata are the first Indian company to establish a substantial presence in Africa. They were doing business on the continent at a time when most others were not prepared to think Africa. That was before business became possible in South Africa, not the favourite destination in Africa and launching pad for the rest of the continent. Raman Dhawan was among the first Tata managers to step into Africa.

Tata’s presence and growth
We are present in 11 countries in Africa, our largest business is in South Africa. We have Tata Motors, Tata Steel, and we have interests in mining as well. TCS is in South Africa and is looking at the whole of sub-Saharan Africa. We are in hotels; the Taj group hotel in Cape Town will be operational early next year. Tata Communications has an interest in Neotel, the second largest fixed line telecommunications service in South Africa.

We are expecting Africa to grow substantially over the next two decades. So far we are reasonably satisfied with what we have achieved. We were not allowed to do business earlier. It had very little to do with India. Now it's been a sharp learning curve. It is easier to bring in niche businesses into South Africa because it is quite developed. We do feel the benchmark will be South Africa for the whole of Africa. We can reach the continent much better if we are established in South Africa.

We are here like any other international company; we are not different from the rest of the world. The rest of the world is looking at growth here, so why shouldn't we. If you can be a good international company, you will grow in Africa.

Difficulties in finding a trained local work force
In most of our businesses, whether it is automobiles or others, we run a state of the art training school. In the automobiles school we have cut-outs and models, where we train people. All the companies are following this model. We do the same thing in India as well. We have a ferrochrome training centre in Richards Bay, and training centres for Neotel and automobiles in Johannesburg. A lot of the workforce was trained here prior to the start-up of the ferrochrome plant.

You don't always have to bring expats. South Africa has got plenty of skills. But it is still necessary to train and re-train people. It depends also on the area of work. In IT there is of course a skills shortage in many countries, which is why India is able to do so well.

Strategies for entering the African market
As entry strategy you have to make sure first that your overheads are in check. At the same time you have to provide service efficiently, without getting top heavy. That's where Tata Africa has been efficient, you can get a better grip on the market if your overheads are under control.

We have a brand-building exercise in each country that is more than just advertising. Fundamentally you have to build your brand by providing value to the customer. That's the only way you can really win. If you go for high cost advertising, you may not win at all.

The success of Indica
I would rate the success of the Indica as fairly good considering that it's the first product here made totally in India. It's the only car there that has an Indian name. We were able to market it successfully and it has now stabilised very well.

We have not changed anything much in the car; the idea of Tata Motors is that whatever is sold in India should be saleable in the international market. That's the benchmark which the group chairman has always used. On the commercial side, on the trucks and the buses, we are totally on our own, and we have been successful in that too.

We found a good partnership with the Imperial Group, though we now play a major and leading role in that. But we created the dealer network, we gave them the confidence that we are in it for the long haul, and that there strong support from Tata Motors. We have upward of 40 dealership outlets now.

We are now introducing the Indica in Ghana and Nigeria. But South Africa was the benchmark.
The Indica was a pioneer in that segment. Some of the existing European makes had not introduced newer models because they were still able to sell. The Indica gave them competition. Now Volkswagen and others are also bringing in these features, but they were pushed to do that because at that time the Indica was in many ways ahead of them.

And now the Nano has created a lot of interest, in Africa they feel the Nano is the car for them. There is a move towards smaller cars all over the world, and we are ahead in that.

Policies that work in Africa
Different markets need different responses. In Africa overall the markets are smaller, so you have to be a niche market player and yet make your business viable. And there are returns when you are able to consistently able to achieve that over a period of time.
We have taken a long-term approach, and that's why we have been in Africa now for over two decades. In most places today you will see Tata trucks.

But we were present in Africa even before South Africa opened up. We have always felt that Africa will have great potential, which we are seeing now happening. It was a well thought out strategy, it's not something we have done on an impulse.

In the first phase we have laid the foundation for the Tata group of companies, that's what I would say I and my team have been able to do, with all the help from the Tata group set-up. We have created a good brand for Tatas and we have created a good brand for India. We have been ambassadors here, we have shown that this here is Made in India, and that has helped, and that will help also others who come in.

Then we have Tata Consultancy Services which is present, which has a good base in Africa, and is starting now to do business in other African countries. So we package it to match whatever are the local requirements. Because Africa is not one Africa, there are many different requirements, Zambia is very different from Zimbabwe, and Nigeria and West Africa is very different from East Africa in their ways of doing business. We have to take our businesses and our products accordingly, take what is available in India, and dovetail it to local requirements.

Emergence of a new middle class in Africa
When I started off a long time ago, Africa did not really have a middle class. It is now starting to have a middle class. That is the most significant development over the last decade or so. And most African countries have adopted democracy, and it is working. Also, trade has been completely liberalised in most of these countries. In terms of exchange controls, you can remit anything. Quite a few countries have dispensed with import licences, the exchange rates have been liberalised, now the market forces decide that. So it's easier to take investment decisions and to do business.

Today Africa is as good or as bad as any other country in the world. It's virtually coming to par, you do not get any constraints.

Local managers
With the managerial class it depends on what you pay and what you can get. There are people available. But overall there is a skills shortage, which is something Africa is developing, but that skills development will take time. They are receptive to bringing in outside manpower, they have never stopped that so long as there is a requirement and you are a genuine investor.

We very much subscribe to the idea of having a large local component of the workforce if we can get it. Because that's part of our long-term view.