Cross-pollination of business solutions across emerging markets
Why African and Asian economies should start learning from each other, and stop looking at how things get done in the West.
The rise of the startup era could be described as the progressive democratisation of problem-solving and the acceptance of bottom-up solutions into the business world – especially in emerging markets.
Since the 2000s, the role played by the Western world and embodied by Silicon Valley has resulted in a reduction of the narrative to prefabricated (read Western) ways of doing business. The entire Palo Alto's suite, made of highly funded, start-up models, abundance of investors, Ivy League graduates, and multi-billionaire business hubs, has been blindly embraced as a ubiquitous pathway for success across all emerging markets. Yet, due to the particular composition of such markets, these models have often turned out to be mildly applicable and counterproductive.
Same same, but different
If the rules of the game change, the old strategies don’t apply. In this sense, established Western models often result inefficient in emerging markets because the playing fields where they are deployed are organically different from London or San Francisco - and require some degree of rethinking.
A lively debate recently has revolved around the question of why venture capitalists did not swarm across Africa as they did elsewhere. This has been based on a dangerous assumption which conceives the development of a business environment as a matter of time rather than composition, which has led into thinking that Africa and Asia would need to accelerate, instead of re-adjusting growth strategies to their particular prerogatives, in order to succeed. This translated into asking how long it would take the Nigerian market to become California rather than what factors would enable business creation in Lagos or Abuja, or in people wondering why VCs would not proliferate across African or Asian markets rather than questioning whether the VC model is what such business ecosystems actually need in order to (develop and) thrive.
One could in fact suggest that the differences between the business infrastructure in San Francisco or London and that of Nairobi or Dhaka would be crystal clear in the eyes of entrepreneurs and business-savvy people in these countries. Yet, this has not been the case until very recently when a few, scattered, chickens have finally started coming home to roost.
Adding insult to injury, the de-contextualisation of business ecosystem building has trickled down to a matter of language and it is not uncommon today to hear young Ugandan entrepreneurs pitch products to investors by under the label of ‘the new Uber or the next AirBnB’ of a particular market segment. However, local and home-grown, as opposed to white and American, is not as appealing, especially when it comes to funding.
The rise of the Valleys
Linguistic contamination goes beyond pitching contests.
Yabacon Valley (Nigeria), Silicon Cape (South Africa) Silicon Dar (Tanzania), Sheba Valley (Ethiopia), Silicon Savannah (East Africa), Silicon Oasis (Dubai), Indonesia’s Digital Valleys, and the multitude of articles wondering whether cities like Bangkok and Ho Chi Minh City will be the next Southeast Asian Valleys are but a few instances of a rhetorical vortex that has come to dominate the media and the tech universe.
“Unlearn everything you learned in Silicon Valley.”
Eghosa Omoigui, EchoVC – Quartz Africa, 2017
Luckily enough, insiders have begun understanding the risks of falling into this speculative narrative and warned against using the Bay Area as a benchmark. From Accra to Kuala Lumpur, entrepreneurs and business people have finally started to realise that context is not only key, but the very element to leverage in order to design successful strategies. When Ashran Dato’ Ghazi, CEO of MaGIC, says:
We should 'not be too absorbed with what happens in Silicon Valley. We could take the essence and learn from it, but the context, localisation — culturally, everything is different.
he refers to two common mistakes: inaccurate benchmarking and regionalisation, that is, the trend to take Silicon Valley as a raw model and thinking of Africa or Asia as a monolithic rather than groups of diverse but compatible economies.
Common problems lead to common solutions
Developed countries and emerging markets – else, the West and the Rest – do not simply differ in terms of infrastructure development. The way culture and customs influence business thinking and problem-solving is crucial and, from Accra to Ho Chi Minh, societies have often come up with similar solutions in order to bypass the lack of a favourable business environment, sustain and keep up with growing the demand for additional products and services.
In Nairobi and Mumbai - as well as across several industries - problems are often comparable, if not equivalent. This similarity has produced a wide range of parallel business solutions across several emerging markets, ranging from finance to agriculture. The private sector, which tends to be faster than the state in responding to socio-economic inadequacies and filling market vacuums, has shown to be highly reactive and adaptable to the difficult business environment. From solar mini-grids in rural areas to Diesel generators for emergency power cuts in business districts, Ghana and Cambodia have far more to share than they have with Washington or Paris.
A constant refrain about emerging economies is the inefficiency, when not the absence, of the financial sector. Over two billion people across Africa, Latin America, and Asia, haven’t got a bank account, let alone access to credit to finance their business. The map below shows the banking inclusion rates as of 2014.
Mobile payments and remittances
Among the most common strategies across emerging markets, the gradual adoption of mobile technology as proxy for financial inclusion and vehicle to exchange money is perhaps the most significant.
Today, “more than a billion people in emerging and developing markets have cell phones but no bank accounts”, which represents a radically different scenario from the one observed in developed countries. This requires the resort to a non conventional tool-box - one filled with deep and localised knowledge and contexts-based solutions.
In Africa only, over 60% of the population works in agriculture and about half of the population in ASEAN countries lives in rural areas. Despite employing a gigantic share of the population, the agricultural sector suffers from capital shortages and is still highly labour-intensive. This has led farmers and civil society to devise bottom-up strategies to re-capitalise the sector. Among the latest success stories is the mushrooming of crowdfunding platforms to finance smallholding farmers and agribusinesses.
In West Africa, Nigerian companies such as ThriveAgric, eFarms and FarmCrowdy, managed to attract considerable investment locally and international to scale their platforms. Likewise, similar services have started populating the Asian ecosystem: Crowde and iGrow in Indonesia, Cropital in the Philippines, AgriBuddy in Cambodia all target the under-capitalised agriculture sector and are all based on mobile technology. Some platforms allow farmers to offer mini-equity in their farms or more flexible forms of investment.
Infrastructure, logistics, and value chain
A similar scenario applies to infrastructure and logistics. As for the banking sector, a full-fledged infrastructure takes several years and considerable resources to be established. Most emerging markets and less developed countries suffer from a quasi-total absence of roads or railways able to connect urban cores to rural areas.
Management consulting giants such as McKinsey and BCG have long addressed the amount of resources needed to bridge the infrastructure gap. In 2017, a report by the McKinsey Global Institute highlighted the need 'to invest an average of $3.3 trillion annually just to support currently expected rates of growth', 60% of which in developing countries. Similarly, another recent publication by Boston Consulting Group gave an insight into the scatteredness and the infrastructure underdevelopment of African markets.
The lack of proper public transportation services causes severe problems in emerging markets due to the relentless urbanisation rates, - which cause cities to overgrow their capacity and unsustainable levels of urban congestion. 'Rapid urbanisation is driving the need for transportation, and where public infrastructure is lacking, online ridesharing is filling the gap.'
It is no surprise that ride or car sharing services such as the Singaporean Grab - which has recently bought Uber's Southeast Asian business -, new Indonesian unicorn Go-Jek, Tootle (Nepal), and Pathao (Bangladesh) in Asia, Safe Motos, Taxify, Uber, Mondo Ride, and Safe Boda in Africa, have come to replace public transport across all emerging markets and quickly became an established proxy for the growing middle class in large cities such as Jakarta and Manila, as well as non-serviced peripheral areas.
Some of these companies seized the opportunity and leveraged their networks and fleets to tap into additional services such as food delivery. Among these are Rocket Internet's Foodpanda, active in a dozen countries all across the Asia Pacific region, Nigerian Jumia Food, and emerging platform such a the Bangladeshi FoodPeon.
More, beyond the startup scene, similar private sector solutions to the absence of public transport are Ghana's tro-tros, Cambodia's tuk-tuks, or Manila's Jeepneys.
Finally, the lack of a well-structured supply chain implies that most businesses, in order to succeed, need to take control of the entire value chain. This is the case for e-commerce platforms that oversee the supply chain from the production site all the way to the customer, or distribution companies such as those in the food sector - who often need to manage the chain from farm to fork.
Better strategic collaboration, less transaction costs
In sum, despite differing from each others, emerging markets tend to share comparable challenges and have proven to be fertile grounds for similar business models and opportunities. An increased cooperation between private and public sector entities across emerging markets would facilitate the implementation of successful strategies and the crowding out of inefficient customs and businesses.
Dario Giuliani, Founder & Editor