Expanding to Africa from the US: 8 mistakes not to make
- Last updated: November 21, 2024
The potential wins when expanding to Africa are truly exciting, but the road to African success is paved with challenges and complexities. For US companies considering entry into the African market, understanding good practices isn’t enough to avoid thorny situations. Knowing which mistakes not to make, however, can make all the difference, and prevent your business from running into unnecessary trouble.
In this article, we go over 8 critical mistakes to avoid when expanding to Africa:
1. Going with a Western Mindset
Importing your Western mindset to Africa is one of the biggest mistakes you could make. Globalisation has made it so that the whole world is connected, but this does not mean that continents like Africa have lost their own cultural specificities. While Africa is often viewed as a monolith, it is actually a continent made up of 54 countries, each with its own distinct culture, language, economy, and regulatory environment. Assuming that the business models and marketing strategies that work in the US will automatically work in Africa is a recipe for failure.
For example, in some African countries, consumer preferences and values are vastly different from those in the US. The products and services that were tailored to the American market and way of life may not be relevant or affordable for the local population. This rings especially true for food preferences, which are influenced by culture and regionality.
Understanding the local context and consumer behaviour through in-depth market research is crucial to creating products and services that resonate with African customers.
2. Not Having Local Contacts or Partnerships
Business success in Africa is heavily reliant on relationships, trust, and understanding of local rules, both written and unspoken. Many US companies make the mistake of trying to enter the African market without strong local contacts or partners. Without these relationships, navigating the complexities of local business environments — including bureaucratic operations, supply chains, government regulations, and cultural nuances — becomes significantly more difficult.
“You have to build relationships with people in these democracies.” Reminds Nana Frimpong, Chief Operating Officer at Social Impact Inc., and member of the Africa HR Solutions Advisory Committee.
“A lot of times and in specific countries, building a relationship, building some level of rapport with the people that are helping you can be the 180° difference between having your paper sit at the bottom of a pile somewhere to just having it move along the process as smoothly as possible.”
Local partners will provide valuable insights into how the market works, assist with regulatory compliance, and open doors to key decision-makers, as well as to swift bureaucratic processes. Establishing relationships with local advisors, legal experts, and business partners will ease your entry into the market, reduce risks, and set your business up for long-term success.
3. Assuming That Everything Works Digitally
In the age of generative AI, it is all too easy to assume that Africa, like much of the US, is a fully connected continent where all systems operate online. While internet penetration and mobile phone usage have grown in recent years, the reality is that not every part of Africa is digitally connected. In fact, many African countries still use manual systems and face infrastructural challenges that affect the way business is conducted.
For instance, while mobile banking has grown in popularity in countries like Kenya where innovative platforms like M-Pesa are widely used, other countries still struggle with basic internet connectivity and traditional banking systems
4. Not Having a Clear Path-to-Market
Many US companies make the mistake of entering African markets without a well-defined path-to-market. Simply launching your product or service in Africa is not enough for it to succeed. You must develop a clear, localised market strategy that considers local distribution networks, infrastructure and labour needs, among other things.
For instance, a direct-to-consumer e-commerce model that works well in the US may not be feasible in certain African markets where logistics and payment systems are less developed. Understanding local preferences is therefore critical to establishing a strong foothold in Africa.
5. Overlooking the Regulatory Environment
Africa has complex regulatory environments that can vary widely from one country to another. Companies that do not thoroughly research and stay up to code with local laws, tax codes, and labour regulations are likely to face delays, fines, or even legal action. Some African countries have strict import/export laws, while others require specific permits or licenses for foreign companies to operate.
Working with an Employer of Record (EOR) in Africa can help your company navigate these regulatory challenges. An EOR like Africa HR Solutions can assist your business with compliance saving you time and protecting you from potential legal headaches. Not addressing these legal requirements early on can lead to costly missteps, thereby delaying your expansion.
6. Underestimating the Importance of Cultural Understanding
Africa is an immensely rich continent, both in terms of natural resources and cultural diversity. Indeed, it is home to thousands of languages, customs, and traditions. Many US businesses underestimate the importance of understanding and respecting local cultures, and even incorporating these local needs into their business strategy. In some cases, a marketing campaign that works in the more liberal US may be seen as offensive in certain more conservative African countries.
It’s important to work with local professionals to avoid these faux pas. Understanding local holidays, taboos, and social structures can make the difference between success and failure in a new market.
7. Ignoring Payment and Currency Challenges
For US companies expanding to Africa, managing payments and understanding the currency landscape are critical to avoiding financial issues. Africa has a wide variety of currencies, and like the rest of the world, African countries are prone to volatile exchange rates, inflation, or currency controls that complicate financial transactions.
It’s essential to have a risk management strategy set up in these cases. This is where Africa HR Solutions steps in, with trusted cross-border payments solutions.
8. Neglecting Employee and Talent Management
Africa is home to a young and rapidly growing workforce. In fact, by 2050, the African population is forecast to rise to at least 2.4 billion, according to the African Development Bank Group. These numbers make talent onboarding one of the keys to success. However, many US companies fail to consider the intricacies of onboarding employees across multiple African markets and complying with local labour laws across these different countries. Labour laws, employee expectations, and even benefits packages vary significantly from country to country.
Working with an Employer of Record (EOR) like Africa HR Solutions can help you onboard local talent without needing to establish a local entity. We handle the complexities of onboarding,
Ready to expand to Africa? Send us a message to chat with one of our experts.