Market Expansion: “Why” And “When”

by Michael Ikpoki | May 26th, 2022

It is a natural and logical progression that every forward-looking and growth-minded business will think about expanding beyond their original or home market. As logical as this may sound, it will require a bit more rigor in thinking about why and when such market expansion becomes critical.

Let us start with the why. This sounds almost mute. Why else will companies want to expand other than to increase profits? They do this by introducing a new product into a new market, scaling the business, particularly in adjoining regional markets, or expanding further afield in the African Continent. To successfully expand into other markets, the company must set a clear growth aspiration with clear pre-determined criteria to consider in thinking about market expansion. These criteria may include market size, purchasing power, indicative market demand, market operations, social nuances, competition, and the regulatory environment. A disciplined and rigorous process must be followed in thinking through market expansion. There is usually the temptation to lean towards expanding into much larger markets. This is a logical and legitimate consideration. However, when decisions are taken to expand into larger markets, the attendant risks, complexities, and trade-offs that come with such decisions must be fully grasped.

Markets have history, nuances, and societal expectations that a new entrant must understand to survive for the short term and grow sustainably. In a World with more informed consumers, new market entrants are measured and judged by an invisible market credibility barometer. Growth expectations must be weighed against realistic market realities and local conditions. This is not a decision that should be taken lightly. The decision must be based on informed local advice rather than desktop analysis from distant corporate head offices and boardrooms.

While profit motives remain ultimately the purpose of market growth and expansion, new companies seeking expansion must endear themselves to the market by thinking more long-term. They must be genuinely committed to the host country without being too judgemental about what they meet on the ground. They must adapt. This acculturation is what secures acceptance from the market. If companies are too brazenly short-term, it will show how the company operations are run and managed, sending signals that the market will note and may respond to negatively. For example, global consumer brands that expanded into Africa over the last twenty (20) years in response to the elusive growing middle class have been compelled to adapt to the reality of a predominant mainstream market. A Chinese company like Transsion has brands that have become the top-selling smartphone brands in Africa by unashamedly making products more relevant to the market. So, it is not enough to expand into new African markets; they must be expanding into these markets for the right reasons – to adapt and grow sustainable businesses in the medium to long-term.

There is also the issue of when the market expansion should happen. It should be a proactive and not a reactive process. A reactive situation is where the company is already under intense competitive pressure in its existing market or being forced to expand for regulatory or political pressures. The process for market entry is a deliberate process that involves a detailed market study, market visits, stakeholder engagements, governance approvals, etc. This all takes a significant amount of time. Market Entry, when planned proactively, gives adequate time to understand the new market, develop a bespoke market strategy, and finalize relevant funding and other arrangements before taking an informed plunge into the market. When driven by reactive pressure, market entry will be hurried and, in the process, may miss out on critical considerations or steps. The market will distinguish between a prepared and an unprepared market entrant and may also respond negatively. Market expansion should be a strategic issue for the management and company boards in African companies, and it should be put through a rigorous process.

As companies think more intently about the why and when to expand into new African markets, we will build more confident African company brands well attuned to the new markets rather than tentative new market entrants.