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Tough terrain

SHARE   |   Monday, 14 November 2016   |   By Kabelo Adamson
Tough terrain

Local companies that are expanding into the region face challenges that make it difficult for them to become successful and profitable quickly. The Managing Director of Econsult, Dr Keith Jefferies, said on Thursday at banking business seminar hosted by Standard Chartered Bank Botswana that a number of Botswana-based companies have in recent years started to expand into the regional markets with the number made of mostly the listed companies such as Choppies, Letshego, Wilderness Safaris, Sefalana, Funeral Service Group (FSG), Furnmart and RDC Properties among others. To Jefferis, these companies face a number of challenges when they arrive in those markets which as a result make them to take quite a long time before they become profitable. He said the companies have to be competitive and efficient as they will not receive preferential treatment from authorities as compared to where they originate. Jefferies said most of the companies in Botswana have grown by simply selling to the government, saying such approach would definitely not work in foreign markets where preference is likely to be extended to locals.

There are a number of examples of companies that have struggled to make profits in external markets and recently leading furniture retail company Furnmart to close in Zambia where it struggled to make profits mainly due to currency exchange related matters. Letshego has also in the past exited the South Sudan market while Choppies has found it difficult to make profits in South Africa and Zimbabwe where it has 64 and 30 stores respectively. The reasons why most listed companies are now looking into the external market, Jefferies said, is because the local market is very small with a population of just a little over two million people. “The domestic market is very small and a company that grows rapidly is likely to reach out to the entire market very soon,” Jefferis said. He said most grown entities here have exhausted their core businesses in the domestic market and as a result, he said, a company can choose to either become an exporter or expand to the outside market.

Moreover, he said, growth acquisitions of companies providing the same services in Botswana have become difficult as the Competition Authority is not likely to approve those kinds of transactions. In the case of local companies in the services sector, Jefferis said the only option left would be to expand the operations outside the country. He said by its nature services are very difficult to export which in most cases could be aligned to cultural lines, giving an example of the life insurance business which he said is not popular in West Africa due to cultural beliefs. On which entry model is suitable for a company entering a new market, Jefferies said both the Greenfield and brownfield methods are preferable depending on the circumstances. Most of the Botswana-based companies that have expanded into the regional market have done so through the brownfield method and in some instances they choose to run with the brand of the acquired entity.