Implementing a 3rd party distribution system in emerging markets can be a challenging undertaking. Often distributors don’t have the required skills and need additional support and training in order to be successful. Below are a number of issues to consider.

1. Supply Chain Skills Development

Emerging markets lack skilled supply chain professionals. It is vital to conduct a skills gap analysis to determine the training recruitment needed.

2. Network Design Skills

Most distributors lack the skills required for network design and routing. Often route schedules are missing and maps are out of date. Companies can play an important role in providing the required training and support to ensure effective network design.

3. Distribution Cost

Often, distributors fail to understand and lack the required skills to determine the true cost to serve. Distributors can often need a helping hand from their principals or partners.

4. Financial Management

Many distributors go out of business due to poor cash flow and working capital management. Distributors provided credit to smaller outlets to expand their business, but lack the required skills to keep track of debtors. When appointing a new distributor, work closely with them to ensure they have the required financial skills to manage their business.


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This is an extract taken from our full Understanding Distributor Management Skills guide.

Many thanks to Supply Chain Lab for contributing this guide.

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Growth in international trade and investment, alongside periodic crises, has made investors navigating foreign terrains wish for a “sixth sense” to anticipate and mitigate the dangers inherent in operating in Country X as opposed to Country Y. Country risk analysis, which is the subject of this brief, is the result.

Any consumer of Africa-related country risk analysis should be aware of inherent potential bias/weaknesses built into the practice:

  • Data: FDI inflows into Sub-Saharan Africa grew from USD566 million in 2003 to USD6.2 billion in 2013, according to the United Nations Conference on Trade and Development (UNCTAD). Although this is a substantial increase, the region still accounts for only 2% approx. of global FDI stock. For the most part then, the information which shapes country risk analysis (incl. on Sub Saharan Africa), has been drawn from the experiences of this narrow grouping of overseas investors and academia. Moreover, lags in market information, the size of the informal sector, and/or gaps in bureaucratic capacity compound the weakness of an arms-length approach to country risk analysis for Sub-Saharan Africa (though to differing extents by country).
  • Home Bias: In this instance we are referring to the analyst’s tendency to assume that institutions/dynamics mirroring that of their home country are low risk and the reverse for those that do not.
  • Backward Perspective: There is also a natural tendency to interpret data through the lens of the last crisis e.g. in assessing the security threat from Boko Haram versus Niger Delta militants or Ebola in Liberia, Guinea and Sierra Leone versus Senegal and Nigeria. Finding mechanisms to be open to current dynamics should be an ongoing concern.

Political and Security Risk

Political

Simply put, the purpose of political risk analysis is to measure the manner and magnitude of risk posed by political decision-making.

Institutional Depth

To the extent that an investor is concerned with dependability of the investment climate, ‘institutional depth’ should be an early consideration. The term refers to an assessment of the shape and robustness of political institutions in the country in question.

Representativeness & Internal Cohesion

Understanding the shape of political institutions and how they function in practice does not mean the job is done. Equally important are representativeness and internal cohesion – measures of the relationship between local interest groups, the extent to which they are included in political decision making, state legitimacy and the implications thereof.

External Relations

Formal and informal relations between a country, its neighbours and the international community at large are important when considering political risk for a number of reasons.

Security Risk

The objective here is to capture the nature and scale of violent threats to the investment under discussion. It closely borders the question of political risk that there is an argument for merging the two concepts

Legal and Regulatory Risk

Legal

Intimately tied to the risks associated with political decision-making are those emanating from the legal and regulatory framework. It is a key component of the country risk analysis process because it projects how the formulation, interpretation and enforcement of the rules of the road will shape investment returns

Regulatory Environment

Transparency, independence and efficiency of the legal system/regulatory environment are all concerned with equity. How clear is the law? Does it address issues of concern e.g. bribery/money laundering? How does it differ in practice? What is the relative power of stakeholders and how do they behave?

Economic, Financial and Operational Risk

Economic and Financial

Africa is diverse. It bears repeating. Descriptions of continental trends will perforce obscure differences in the status and outlook for individual countries. Nevertheless, we have observed that while political topography and the ‘cost of government’ remain the first consideration of investors from outside the region looking in, economic and financial risk are again in the limelight due to the juxtaposition of improved performance since the 2000s e.g. higher and more stable growth (see Figure 2: Real GDP Growth, Sub-Saharan Africa 1973-2014), as against volatility hitting a number of key economies in the region today.

Operational

The viability/competitiveness of most modern economic activities rests on the availability of ‘backbone infrasturcture’ i.e. transport, communications, power, infrastructure and human capital. As such, modeling the current operational context and projecting ahead is an essential part of any sound country risk analysis.


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This is an extract taken from our full Country Risk guide.

Many thanks to Songhai Advisory for contributing this guide.

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When discussing supply chain management in Africa, words such as bottlenecks, bureaucracy and corruption are often referred to. While there are similarities and differences from region to region and country to country, it is vital to understand these as opposed to grouping the entire continent into one category.

High costs and long lead times are some of the biggest challenges to moving goods in African markets. On average, cargo spends 20 days in African ports, compared to 3-4 days in other countries. This contributes to the estimated 60-70% higher cost in transporting goods in Africa compared to the US or Europe.

Working with third party logistics that understand the regulations and have built up relations can be vital. Managers must also be aware of the lack of a harmonised legal and regulatory environment.

Roads, Transport & Warehousing

Transport networks vary significantly across the continent and it is necessary for organisations to have a good understanding of the road-networks where they operate. Distribution distances tend to be large while distribution centres limited, so evaluating the need for more centres to reduce cost is key.

Warehousing is also an issue; from finding professional operators; to adequately designed warehouses for rent, often key components of the process are overlooked. Working with local operators can allow management to tap into a lower cost structure and provide greater flexibility.

It is vital that management understand how markets operate and whether it makes sense to operate a fleet or to outsource, rent or lease. Transport costs are raised due to poor road conditions leading to more regular maintenance. Smaller organisations can benefit by collaborating with other companies to consolidate shipments.

Skills & Technology

Increasing visibility is a priority and a challenge. While manual labour remains relatively cheap, mid-tech solutions are being explored. Organisations need to play an active role in capability development and understand individual markets.


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This is an extract taken from our full Moving Goods guide.

Many thanks to Supply Chain Lab for contributing this guide.

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It is important that an investor considers the issue of dispute resolution at the outset of the transaction. It should form part of the investor's evaluation of the risk of the investment and not left as a minor point to be addressed at the end of the contract drafting process.

Ghana's Legal System

The Ghana legal system is based on English common law, customary (traditional) law, and the 1992 Constitution.

Alternative Dispute Resolution (ADR)

The majority of investors prefer to use ADR to resolve their disputes. ADR certainly can prove to be a quicker and more efficient means of resolving disputes. Furthermore, within Ghana (and elsewhere in the West African region), there is an established and recognised mechanism for the enforcement of foreign arbitral awards.

Other considerations:

A. Limitation Periods for Civil Claims:

It is important to be aware of the limitation periods applying to a claim. The limitation periods are provided by statute and vary depending on the cause of action.

B. Business Transactions to which the Government is a party:

In contracting with the Government, an investor should take note of Article 181(5) of the Ghanaian Constitution. This Article imposes the requirement for parliamentary approval of an "international business or economic transaction to which the Government is a party".

C. Enforcement of foreign court judgments

The method for enforceability of a foreign court judgment in Ghana depends on whether or not the country from which the judgment originates has a reciprocal arrangement with Ghana for the enforcement of judgment.

D. Enforcement of foreign awards

Ghana is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, concluded in 1958 (the New York Convention) and which provides a regime for the enforcement and recognition of arbitral awards within contracting states.

E. Investment Treaties:

As part of the investment planning process, it is important for an investor to consider whether it can take advantage of the protections offered by bilateral investment treaties, as this may allow the investor to bring claims directly before an international arbitration tribunal and avoid having to litigate in the local courts.

F. Approaches in neighbouring countries:

In the event that an investor is also considering investments in other countries in the West African region, it is worth bearing in mind that a number of Ghana's neighbours are parties to the Organisation for the Harmonization of Business Law in Africa (OHADA).

 

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This is an extract taken from our full Dispute Resolution in Ghana guide.

Many thanks to Clyde & Co for contributing this guide.

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In supply chains in African businesses, the challenge is not big data, as in developed countries, but simply data itself. While striving for increased visibility, African companies’ goals remain focused on the internal organisation rather than suppliers and customers.

A number of key Supply Chain Issues

1. Demand Planning

Difficulty in forecasting demand, dealing with fluctuating costs and often depreciating currencies, results in a fragile domestic supply chain.

2. Counterfeit and Parallel Imports & Corruption

Counterfeit and parallel imports remain a major concern in many markets, while a number of countries struggle with high levels of bribery and corruption.

3. Supply Chain Risks

Ever evolving risks ranging from conflicts to terrorism lead to major disruptions in the supply chain where risk in one area can easily affect the whole supply chain.

4. Territory & Road Infrastructure

Lack of infrastructure results in poorly connected markets.

5. Lead Times

Landlocked countries are particularly impacted where the lead times are significantly longer.

Overcoming these challenges requires patience and a continuous improvement mindset, where organisations need to be willing to invest in people and to take time to understand the market conditions at hand.

 

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This is an extract taken from our full Key Issues in Logistics & Supply Chain guide.

Many thanks to Supply Chain Lab for contributing this guide.

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Trade in Africa is still in the very early stages of development. The numerous traditional trade outlets (e.g. dukas) remain the biggest segment of the market. Moving goods to this large, fragmented base is difficult and costly. Smaller stores have limited cash flow and stock space resulting in the need for an intermediary such as a wholesaler to break bulk deliveries into more manageable quantities.

Understanding the Problem of Fragmented Markets

For managers setting up a route-to-market system, it is important to know how products flow into the market. The wholesale structure can assist marketers, but can be a barrier to doing business for brand owners.

Wholesalers are motivated by prices and deals, thus are not ideal as an exclusive long-term strategy. Brand owners can provide additional whole sale support and account development to help create demand.

As African markets become more attractive, companies are moving away from trading and are adopting a more organised route-to-market making use of distributors.

Understanding the Congestion Problem

Most African cities suffer from congested roads, and retail outlets are located in densely populated areas. Thus alternative distribution strategies such as micro distribution are needed to reach certain areas.

Being able to see what is going on in the supply chain via technology remains a big challenge. Cost of installing hardware is high, thus mid-tech solutions such as mobile phones are being explored.

Understanding the Base of Traditional Outlets

The focus will remain on reaching a large base of traditional outlets and thus identifying third party logistics (3PLs) partners who understand the regulations and have the necessary relationship networks is vital.

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This is an extract taken from our full Reaching your Customer Base in Fragmented Markets guide.

Many thanks to Supply Chain Lab for contributing this guide.

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Large parts of Africa have seen impressive and sustained economic growth patterns with the continents economic output tripling over the past decade. Political, economic and regulatory reform is reshaping the continent. Armed conflict has significantly reduced, providing the relative stability required for economic growth and development. Structural changes have helped invigorate markets and commerce, creating an environment that is increasingly conducive to business and investment.

Africa’s Growth

Africa offers an exciting opportunity for investment and growth, and an alternative to the Asian and other rapid-growth markets, with 27 African countries having already attained “middle income” status.

Perception Barrier

EY’s Africa attractiveness survey showed 60% of respondents view Africa improving as a place to conduct business. A further 73% believe that this attractiveness will increase over the next three years, with only 4% believing the contrary. However, of these optimists, 92% are already active in business on the continent. Clearly, a stark perception gap exists between those already present versus those who are yet to invest in Africa.

Reality, Challenges & Risks

Corruption and political instability are both common and big challenges.

Geographically, Africa’s sheer size is in itself daunting leading to practical and logistical implications. Its 54 different countries are accompanied by a fragmented set of rules, regulations, stakeholders, languages, cultures and market dynamics.

Perceptions of Africa as a high risk, difficult, and sometimes dangerous place to do business are still very real and a thorough process of fact-based due diligence is needed in identifying and prioritizing markets for investment.

 


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This is an extract taken from our full The Emerging Powerhouse guide.

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Distribution in a relatively young and unsophisticated market can prove to be a difficult task. Here are some important factors and issues to consider when looking at distribution in an emerging market.

1. Fragmented markets

Modern trade in most African countries is still in the very early stages of development and reaching large numbers of traditional outlets (e.g dukas) is a difficult and costly business.

2. Territory

When working with distribution partners, does the distributor have the ability to service the territory? Are routes and maps in place?

3. Customer service frequency

Outlets in emerging markets often have limited cash flow and space to stock product. Review the required service frequency and the need for micro supply depots or wholesalers.

4. Cost to serve

The true cost to serve is often underestimated and companies must have a clear understanding of the cost to serve for both the distributor and the company.

5. Skills & Technology

Emerging market operations often lack critical skills. Evaluate mid tech solutions and identify the “appropriate technology” for your operation.

6. Regulatory environment

Review the regulatory environment including cross county or district tariffs where applicable. In some countries distributors and transporters are subject to multiple charges for crossing county borders.

7. Culture

Take time to understand culture issues and don’t assume anything.

 


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This is an extract taken from our full Key Distribution Issues guide.

Many thanks to Supply Chain Lab for contributing this guide.

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Despite ongoing concerns related to inclusion and sustainability, Africa’s long-term growth remains strong as the continent continues to benefit from a demographic dividend, better governance and increased industrialization.

In West Africa, indicators show that the Nigerian economy has begun a slow recovery following its first economic contraction in over 20 years. After December’s election, Ghana looks set to return to being a bright spot in the region. The new government’s economic strategy appears to have won investor confidence as the country recently accessed USD 2.2 billion on the international bond markets and the cedi has started to strengthen. Côte d’Ivoire is emerging as one of the continent’s economic giants, with growth expected to be the highest in Africa this year.

Kenya remains East Africa’s largest economy, however a combination of upcoming elections and severe drought makes for an uncertain 2017. Tanzania and Ethiopia continue to show significant growth spurred by large infrastructure spending.

Despite these opportunities, the prospect of navigating often opaque and challenging legal landscapes can deter much needed foreign investment. Challenges related to new tax and regulatory regimes, difficulties in expropriating profits, uncertainty about employment and local content legislation or lack of clarity in real estate laws all represent significant business risks to foreign investors.

This guide aims to provide legal and commercial professionals a high-level overview of key legal issues in 10 key African economies.

Read the full guide here

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